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2022
DENNY’S CORPORATION
ANNUAL REPORT
CEO letter
To Our Shareholders,
2022 was marked by strong progress and positive
change which have us all excited about our future.
For starters, our Board of Directors oversaw a very
thoughtful leadership transition process,
and I was thrilled to be named the new
CEO. With a strong foundation already
in place, a highly capable team that is
focused and committed to growing the
business, and opportunities to improve
team member and guest experiences,
optimize operating margins, and
leverage technology that are being
we love
feeding
people.
community, food, diversity, our people, and the
environment. We have identified the restaurant
general manager as the most critical position for
restaurant performance, and we aim to have the
best programs to attract, retain and develop
these important leaders. This involves
offering transformative experiences
and benefits that foster a sense of
inclusion, wellness, and belonging. We
have been recognized for our efforts
here, most recently named one of
America’s Greatest Workplaces for
Diversity in 2023 by Newsweek. We
also continue to evaluate, develop,
and offer programs to assist our
employee’s mental and financial health so they
can be their best selves at work and at home.
II. Drive Profitable Traffic Through Relevant
and Outstanding Guest Experiences
We are thrilled that our franchise and company
restaurant operators continue to take care of our
guests every day. This has been reflected in our
guest net sentiment scores which have been
steadily improving at Denny’s. Currently, Millennials
and Gen Z represent approximately 45% of our
customers, and over half of our guest base is
ethnically diverse. Denny’s is a place enjoyed by a
multitude of generations with diverse backgrounds
who frequent our restaurants for a variety of
Completed
acquisition
of Keke’s
Breakfast
Café
dining occasions across all dayparts.
We truly are America’s Diner for
today’s America, and that diner
positioning will remain a unique
competitive advantage. To make
further gains, we are focused on
learning more about our core guests
to ensure we provide that outstanding
experience they seek every day.
III. Optimize the Business Model to Maximize
Restaurant Margins
As we increasingly focus on our core guest, we will
thoughtfully consider ways to reach those guests
with key marketing messages, optimize existing
pricing strategies, and address key customer pain
points. Given the persistent challenging inflationary
environment, our teams today are focused on
identifying margin improvement opportunities,
particularly those that can drive profitable traffic.
embraced throughout the organization,
I could not be more energized to build upon
the Company’s achievements.
In July 2022, we completed the acquisition of Keke’s
Breakfast Café, which transformed our business into
a portfolio company operating two complementary
concepts. To ensure each brand maintains its own
unique identity and differentiated position in the
market, we evolved our organizational structure
with the appointments of John Dillon to serve as
president of Denny’s and David Schmidt to serve as
president of Keke’s. Our two brands now operate
with independent leadership teams, each driving
their own strategies, products, marketing, operations
and development initiatives, supported by our
shared services functions.
As we worked through the year,
our seasoned and talented senior
leadership team leveraged the
perspectives of our franchise partners,
operators, and leaders from both
brands, along with insightful data
about our guests, to refine and refocus
the following strategic priorities which
will guide our business into the future:
Strategic Priorities
I. Develop Best-In-Class People and Teams
Through Culture, Tools, and Systems
We are a company grounded in strong values and
a purpose-driven culture. Our heritage of serving a
higher calling inspires us every day as we support
our five social impact focus areas: family and
We have seen recent notable improvements in
our guest sentiment scores following the launch
of our All Day Diner Deals value menu, while our
barbell pricing strategy has protected a strong
guest check average. With our new kitchen
modernization initiative functionally complete,
we will begin featuring some amazing new
craveable products.
celebrating
years70
While our initiatives evolve to meet
changing guest expectations, our
commitment to returning capital to
shareholders endures. We believe
balancing investments in our brands
for future growth and deploying
meaningful amounts of our Adjusted
Free Cash Flow* towards share
repurchases is a winning combination.
In fact, since beginning our share
repurchase program in late 2010, we have
allocated nearly $650 million to share repurchases,
including approximately $65 million in 2022.
In closing, Denny’s will be celebrating its 70th
anniversary this year, and I am incredibly excited
to lead our business into the future. The positive
changes experienced in 2022 will provide
momentum for continued success for many years
to come. I want to personally thank our guests,
franchisees, shareholders, suppliers and team
franchisees, shareholders, suppliers and team
members for their continued support and dedication.
members for their continued support and dedication.
Kelli F. Valade
Kelli F. Valade
Chief Executive Officer
Chief Executive Officer
April 2023
April 2023
Top
IV. Lead with Technology
and Innovation
Following the successful completion of our
kitchen modernization initiative, we will turn our
focus to rolling out restaurant technology updates,
including a new cloud-based point-of-sale
system. We anticipate this deployment will
enable an enhanced guest experience, greater
operational excellence, anticipated
labor efficiencies, an improved
payment experience, and serve as
a platform for future innovation.
V. Grow New Restaurants
as a Franchisor of Choice
Our current Denny’s development
pipeline remains strong with over 200
global commitments, and we believe
successful execution against these other
strategies will yield greater franchisee interest
going forward. We are also excited about the
opportunity to support an acceleration in the
long-term development opportunity for Keke’s
Breakfast Café. We remain impressed by the
sophistication of the existing Keke’s franchisees
and their desire to continue growing within Florida,
as we develop plans to expand into other states.
We anticipate 2023 will be a foundational year
at Keke’s as we leverage the support of our
shared services functions, round out a leadership
team positioned for growth and begin accelerating
development in 2024 and beyond.
The restaurant industry remains challenged by
a macroeconomic environment characterized
by persistent inflation and staffing challenges.
However, conditions are steadily improving, and
we have confidence in our current initiatives. We
continue to support our franchisees with multiple
tools to assist with their return to full
staffing and operating hours, and we
are encouraged by the progress being
made. At approximately 21% of total
sales, we believe our off-premise
business will remain a key strength,
particularly with a growing mix of
younger guests and overweighting of
transactions from our virtual brands
occurring at dinner and late night.
100most loved
workplaces
* Please refer to the historical reconciliation of Net Income (Loss) and Net Cash Provided by (Used in) Operating Activities to Non-GAAP Financial Measures set forth on the last page of this report.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2022
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 0-18051
DENNY’S CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
13-3487402
(I.R.S. Employer Identification No.)
203 East Main Street
Spartanburg, South Carolina
(Address of principal executive offices)
29319-9966
(Zip Code)
Registrant’s telephone number, including area code (864) 597-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
$.01 Par Value, Common Stock
Trading Symbol(s)
DENN
Name of each exchange on which registered
The Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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 ☑ 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 ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 filer ☑ Non-accelerated filer ☐ Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was $432,398,476 as of June 29,
2022, the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sales price of the registrant’s common stock
on that date of $8.93 per share and, for purposes of this computation only, the assumption that all of the registrant’s directors, executive officers and beneficial
owners of 10% or more of the registrant’s common stock are affiliates.
As of February 23, 2023, 56,424,922 shares of the registrant’s common stock, $.01 par value per share, were outstanding.
Portions of the registrant’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE:
ii
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F-1
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 6.
Reserved
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART III
PART IV
Signatures
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Index to Consolidated Financial Statements
FORWARD-LOOKING STATEMENTS
The forward-looking statements included in the “Business,” “Risk Factors,” “Legal Proceedings,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About
Market Risk” sections and elsewhere herein, which reflect our best judgment based on factors currently known, involve risks and
uncertainties. Words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “hope,” and variations of such words and similar
expressions are intended to identify such forward-looking statements. Such statements speak only as to the date thereof. Except as
may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or
circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events. Actual results could differ
materially from those anticipated in these forward-looking statements as a result of a number of factors including, but not limited
to, the factors discussed in such sections and, in particular, those set forth in the cautionary statements contained in “Risk Factors.”
The forward-looking information we have provided in this Form 10-K pursuant to the safe harbor established under the Private
Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors.
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Reserved
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Index to Consolidated Financial Statements
Signatures
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F-1
FORWARD-LOOKING STATEMENTS
The forward-looking statements included in the “Business,” “Risk Factors,” “Legal Proceedings,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About
Market Risk” sections and elsewhere herein, which reflect our best judgment based on factors currently known, involve risks and
uncertainties. Words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “hope,” and variations of such words and similar
expressions are intended to identify such forward-looking statements. Such statements speak only as to the date thereof. Except as
may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or
circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events. Actual results could differ
materially from those anticipated in these forward-looking statements as a result of a number of factors including, but not limited
to, the factors discussed in such sections and, in particular, those set forth in the cautionary statements contained in “Risk Factors.”
The forward-looking information we have provided in this Form 10-K pursuant to the safe harbor established under the Private
Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors.
PART I
Item 1. Business
Description of Business
Denny’s Corporation, or the “Company”, a Delaware corporation, is one of America’s largest franchised full-service restaurant
chains. The Company owns and operates the Denny’s brand (“Denny’s”) and the Keke’s Breakfast Cafe brand (“Keke’s”). As
of December 28, 2022, the Company consisted of 1,656 restaurants, 1,582 of which were franchised/licensed restaurants and
7 4 of which were company operated.
The Denny’s Brand
Denny’s is known as “America’s Diner”, or in the case of our international locations, “the local diner.” Open 24/7 in most
locations, we provide our guests quality food that emphasizes everyday value and new and innovative products through our
compelling limited time only offerings, delivered in a warm, friendly “come as you are” atmosphere. Denny’s has been serving
guests for nearly 70 years and is best known for its all day breakfast fare. The Build Your Own Grand Slam, one of our most
popular menu items, traces its origin back to the Original Grand Slam which was first introduced in 1977. Denny’s offers a wide
selection of lunch and dinner items including entrees, burgers, sandwiches and salads, along with an assortment of appetizers and
desserts. We have four dayparts, breakfast, lunch, dinner and late night, accounting for 27%, 36%, 21% and 16%, respectively,
of average daily sales. Weekends have traditionally been the most popular time for guests to visit our restaurants. In 2022, 38%
of an average week of sales occurred from Friday late night through Sunday lunch. Additionally, off-premise sales, including
sales for delivery and through our two virtual brands, represented approximately 21% of total sales in 2022.
As of December 28, 2022, the Denny’s brand consisted of 1,602 franchised, licensed and company restaurants around the
world, including 1,445 restaurants in the United States and 157 international restaurant locations. As of December 28, 2022,
1,536 of Denny’s restaurants were franchised or licensed, representing 96% of the total Denny’s restaurants, and 66 were
company restaurants.
The Keke’s Brand
We acquired Keke's on July 20, 2022. Keke’s is a daytime eatery dedicated to providing a consistently outstanding breakfast
experience through fresh food that is made to order, excellent service from a welcoming staff, and a clean and comfortable
environment. Open daily from 7:00 a.m. to 2:30 p.m, Keke’s produces meals that are handmade using the best ingredients
available, including fresh fruits and vegetables, and the highest quality bread and dairy products. In addition to breakfast
items, Keke’s also serves burgers, paninis, salads, and sandwiches. Approximately 45% of Keke’s total weekly sales occur
on the weekends, and off-premise sales, including sales for delivery, represented approximately 14% of total sales in 2022.
As of December 28, 2022, the Keke’s brand consisted of 54 franchised and company restaurants in Florida, of which 46,
representing 85% of total Keke’s restaurants, were franchised and eight were company restaurants.
Segment Information
We manage our business by brand and as a result have identified two operating segments, Denny’s and Keke’s. In addition,
we have identified Denny’s as a reportable segment. Keke’s is presented as a component of Other in our segment disclosures.
Additional information about our segments can be found in Note 21, “Segment Information” to our Consolidated Financial
Statements in Part II, Item 8 of this report.
References to the “Company,” “we,” “us,” and “our” in this Form 10-K are references to Denny’s Corporation and its subsidiaries.
Reference to “Denny’s” or “Keke’s” are references to the specific brand. Financial information about our operations, including our
revenues and net income (loss) for the fiscal years ended December 28, 2022, December 29, 2021, and December 30, 2020,
and our total assets as of December 28, 2022 and December 29, 2021, is included in our Consolidated Financial Statements.
1
Macroeconomic Conditions
Starting in 2020 and continuing through 2022, the global economic crisis resulting from the spread of the coronavirus
(“COVID-19”), along with government and consumer responses, has had a substantial impact on our restaurant operations,
including impacts on labor and commodity costs and the ability of many Denny’s franchise restaurants to return to 24/7
operations. During 2020, many of our company and franchised and licensed restaurants were temporarily closed and most
of the restaurants that remained open had limited operations. As of the end of 2022, many Denny’s restaurants have not
returned to full operating hours, particularly at the late night daypart. Our operating results substantially depend upon the
sales volumes, restaurant profitability, and financial stability of our company and franchised and licensed restaurants.
We cannot currently estimate the duration or future negative financial impact of these macroeconomic conditions on our
business. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
for additional information relating to the impact of these macroeconomic on our business and financial results.
Franchising and Development
Franchising
Our criteria to become a Denny’s franchisee include minimum liquidity and net worth requirements and appropriate operational
experience. We believe that Denny’s is an attractive financial proposition for current and potential franchisees and that our fee
structure is competitive with other full-service brands. Our current traditional twenty-year Denny’s franchise agreements have
an initial fee of up to $30,000 and a royalty payment of up to 4.50% of gross sales. Additionally, our franchisees are required
to contribute up to 3.25% of gross sales for marketing and may make additional advertising contributions as part of a local
marketing co-operative. Approximately 82% of our Denny’s franchised restaurants were operating under this traditional
agreement as of December 28, 2022. License agreements for nontraditional locations, such as university campuses, may
contain higher royalty and lower advertising contribution rates than the traditional franchise agreements. Our domestic
contractual royalty rate averaged approximately 4.39% during 2022.
We work closely with our franchisees to plan and execute many aspects of the business. The Denny’s Franchisee Association
(“DFA”) was created to promote communication among our franchisees and between the Company and our franchise community.
Members of the DFA’s board and Company management primarily work together through Brand Advisory Councils relating
to Development, Marketing, Operations and Technology matters, as well as through a Supply Chain Oversight Committee for
procurement and distribution matters.
Domestic Development
To accelerate the growth of the Denny’s brand in specific under-penetrated markets, we offer certain incentive programs.
These programs provide incentives for franchisees to develop locations in areas where Denny’s has opportunities to grow
market share. The benefits to franchisees can include reduced franchise fees, upfront cash payments, lower royalties and
advertising contributions for a limited time period and credits toward certain development services, such as training fees.
In addition to these incentive programs, we increased our domestic development commitments through our refranchising
and development strategy implemented during 2018 and 2019. These commitments were attached to the sale of 113 company
restaurants during 2018 and 2019. At December 28, 2022, we had approximately 93 domestic development commitments.
International Development
In addition to the development agreements signed for domestic restaurants, as of December 28, 2022, we had potential to
develop approximately 118 international franchised Denny’s restaurants with our current development partners in various locations
including Canada, Central America, Curacao, Indonesia, Mexico, the Middle East, the Philippines and the United Kingdom. The
majority of these restaurants are expected to open over the next ten years. During 2022, we opened eight international franchised
locations, including three in Canada, two in Mexico and one each in Curacao, Guatemala and the Philippines.
While we anticipate the majority of the Denny’s restaurants related to various domestic and international development
agreements will be opened generally as scheduled, from time to time some of our franchisees’ ability to grow and meet their
development commitments may be hampered by the economy, the lending environment or other circumstances. As a result
of the COVID-19 pandemic, we have deferred many of our domestic and international development commitments for one
year or more from their original due date.
2
Franchise Focused Business Model
We expect the majority of our future restaurant openings and growth of the Denny’s brand to come primarily from the
development of franchised restaurants. The table below sets forth information regarding the distribution of single-store and
multi-store franchisees as of December 28, 2022:
Number of Denny’s Restaurants Owned
Franchisees
Percentage of
Franchisees
Restaurants
Percentage of
Restaurants
One
Two to five
Six to ten
Eleven to fifteen
Sixteen to thirty
Thirty-one and over
Total
Keke’s Development
84
73
27
14
10
11
38.4 %
33.3 %
12.3 %
6.4 %
4.6 %
5.0 %
84
225
219
172
234
602
5.5 %
14.6 %
14.3 %
11.2 %
15.2 %
39.2 %
219
100.0 %
1,536
100.0 %
Similar to Denny’s, we expect the majority of our future Keke’s restaurant openings and growth of the brand to come primarily
from the development of franchised restaurants. However, we anticipate the first few Keke’s restaurant openings outside of
Florida will likely be company operated restaurants to prove the appeal of the brand in new markets.
Site Selection
The success of any restaurant is significantly influenced by its location. Our development teams work closely with franchisees
and real estate brokers to identify sites that meet specific standards. Sites are evaluated based on a variety of factors, including
but not limited to:
•
•
•
•
•
•
•
demographics;
traffic patterns;
visibility;
building constraints;
competition;
environmental restrictions; and
proximity to high-traffic consumer activities.
Product Development and Marketing
The Denny’s name has been associated with high-quality, reasonably priced entrees, appetizers and beverages which have
appealed to guests across all generations for nearly 70 years. As a leading full-service family dining brand, we’ve developed
a craveable, indulgent menu that forges brand loyalty, attracts new guests to Denny’s and establishes the framework for our
primary marketing strategies.
Menu Offerings
As “America’s Diner,” Denny’s has created a menu that offers a large selection of craveable, indulgent products served in a
friendly and welcoming atmosphere for all guests. We offer a wide variety of entrées for breakfast, lunch, dinner and late-night
dining as well as appetizers, desserts and beverages. Most Denny’s restaurants also offer special menu items for children and
seniors at reduced prices. We consistently optimize our product offering to further align with consumer needs, which includes
enhancing our core “breakfast all day” platform while providing everyday affordability, abundant value menu items, such as
Super Slam, and delivering compelling core menu and limited-time-only products. Our menu items are conveniently enjoyed
by guests either in our restaurants, via pick-up, curb-side delivery or delivery through our Denny’s on Demand platform and
third-party delivery providers.
Denny’s on Demand is our internal digital ordering platform that provides guests with a personalized experience by enabling
them to order whatever they want, whenever they want. Guests simply have to log onto the new Denny’s mobile app or online
3
for takeout or delivery to wherever they want to enjoy their favorite Denny’s items. Our new mobile app also grants Denny’s
Rewards members access to their digital wallets to receive rewards and promotions, both in-restaurant and online.
Product Development
Denny’s is a consumer-driven brand focusing on hospitality, menu choices and the overall guest experience. Our Product
Development team innovates menu items that delight our guests during each visit. This team works to understand the most
up-to-date trends through consumer insights from primary and secondary qualitative and quantitative studies and ideas from
our franchisees, vendors and operators. These insights come together to form the strategic foundation for menu architecture,
pricing, promotion and advertising.
Our guests are the center of all menu innovations at Denny’s. Before introducing a new menu item to market, we rigorously
test it against consumer expectations, standards of culinary discipline, food science and technology, nutritional analysis, financial
benefit and operational execution. This testing process ensures that new menu items are not only appealing, competitive,
profitable and marketable, but can be prepared and delivered with excellence in our restaurants.
We continually evolve our menu through new innovations and improvements to meet the needs of ever-changing consumer
and marketplace.
Product Sources and Availability
Most food products, paper and packaging supplies, and equipment used in all company and franchised restaurant operations are
distributed to individual restaurants by third-party distribution companies. Our centralized purchasing programs are designed to
ensure uniform product quality as well as to minimize food, beverage and supply costs. The size of our brands provide significant
purchasing power, which often enables us to obtain products at favorable prices from nationally recognized suppliers.
In the U.S., the majority of Denny’s products are purchased and distributed through McLane Company, Inc. under a long-term
distribution contract. Outside the U.S., we and our International Denny’s franchisees primarily use decentralized sourcing and
distribution systems involving many different global, regional and local suppliers and distributors. Our international franchisees
generally select and manage their own third-party suppliers and distributors, subject to our internal standards. All suppliers and
distributors are expected to provide products and/or services that comply with all applicable laws, rules and regulations in the
state and/or country in which they operate as well as comply with our internal standards.
We believe that satisfactory alternative sources of supplies are generally available for all of the items regularly used by our
restaurants. We have not experienced any material shortages of food, equipment, or other products which are necessary to our
restaurant operations.
Marketing and Advertising
We deploy national, local and co-operative marketing strategies to promote and amplify Denny’s brand strengths as “America’s
Diner.” Through integrated marketing strategies, we promote our various breakfast, lunch, dinner, and late-night menu
offerings and premium limited-time-only offerings as well as the convenience of online ordering and payment for pick up or
delivery.
Through our Marketing team, Denny’s anticipates consumer and market trends and fully leverages consumer insights to
determine strategies for brand communication and demand generation. We participate in comprehensive, integrated marketing
activities, including print, broadcast, radio, digital and social advertising; multicultural marketing; public relations and brand
reputation; customer relationship management, field marketing; and national and local promotions.
Restaurant Operations
Management & Operations
We believe that the consistent and reliable execution of basic restaurant operations in each of our restaurants, whether it is
company or franchised, is critical to our success. We expect both our company and franchised restaurants to maintain the same
high brand standards. Our standards are, and have been, critical to the brand’s success. They include best in class quality and
preparation of food, meeting and exceeding our guests’ expectations for service, cleanliness and value and providing a friendly
experience at each restaurant.
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Brand Protection, Quality & Regulatory Compliance
business resource groups include the African American Leadership Group, Asian Pacific Islander Leadership Group, Emerging
Leaders Group, Hispanic Leadership Group, LGBTQ+ Leadership Group, Veterans Leadership Group, and Women’s
Maintaining brand standards is of the utmost importance for each of our brands. We pride ourself in serving our guests food
that is safe, wholesome and meets our quality standards. Our systems are based on Hazard Analysis and Critical Control Points
(“HACCP”) principles. To ensure this basic expectation of our guests, we have systems in place that require solely the use of
approved vendors and distributors which can meet and follow our product specifications and food handling procedures.
Vendors, distributors and restaurant employees follow regulatory requirements (federal, state and local), industry “best
practices” and Brand Standards.
Leadership Group.
Diversity Council
Human Capital
Human capital management considerations are at the core of Our Guiding Principles, the drivers of which include leveraging
our culture of belonging and the capability of our people to fuel brand performance and franchise success, as well as recruiting
and equipping the best restaurant operators in the world to deliver great customer experiences. As of December 28, 2022, we
had approximately 3,700 employees of whom approximately 3,300 were employees of our company-owned restaurants and
approximately 400 were corporate employees at our restaurant support centers or in the field. Our commitments and progress
towards executing this strategy in support of employee experience and performance are reflected below.
Be Well
We focus on the whole person.
We offer comprehensive benefits that support our team members and their families’ overall well-being. We also contribute to
programs that provide our team members with financial security, now and in the future. We offer a robust set of benefits and
rewards that focus on recognition, career building, health and wellness, and other perks that are designed to make our
employees’ experience productive and fun. We assess our culture and listen to our workforce through periodic employee
engagement surveys. Numerous policy changes have been made or been influenced by the feedback we receive from our
employees.
We are proud to offer an Employee Assistance Program to all employees and family members. This confidential program
is available 24/7 for personal or professional consultations. In addition, we provide our employees with access to a 401(k)
savings plan, tuition reimbursement, life insurance options, and a competitive vacation policy. Our compensation and
performance evaluation systems are carefully designed to maintain pay equity by focusing pay decisions on experience and
performance to ensure the Company retains a highly productive workforce to operate our business while providing a high
level of service to our guests.
Learning and Development
We invest in team members’ success through education and training. Our Breakthrough Leadership Training and Development
program provides our team members with exclusive access to numerous creative and interactive employee engagement
curricula, leadership workshops, simulations, mobile learning and educational training videos. This unique program helps
develop a wide range of skills, including leadership, people management, guest service, inventory management, food
preparation and food safety—skills that help workers successfully operate in the restaurant industry.
Diversity, Equity & Inclusion
Our investment in people includes creating a culture of belonging that attracts, retains and fosters the growth of the best
people and creates high performance in our restaurants. We value and are proud of our community engagement including our
investment in causes that are important to our people and communities, such as our education initiatives through our Denny’s
Hungry for EducationTM Scholarship program, helping fight childhood hunger, and supporting diverse and disadvantaged
businesses.
Additional components of our strategic areas of focus include:
Business Resource Leadership Groups
We have established seven business resource leadership groups for our employees to provide encouragement and an enhanced
sense of belonging through informal mentoring, participation in professional and community events and access to personal and
professional development and growth opportunities. Additionally, they help foster a more inclusive work environment, improve
communication and trust among employees and enhance understanding of all employees about the value of diversity. The seven
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Our Diversity, Equity and Inclusion (“DEI”) Council collaborates on initiatives designed to renew our workplace and create
business results that will increase and strengthen the reputations of our brands, guest satisfaction and market share. The council
consists of 19 cross-functional members representing various positions throughout our organization, who serve as ambassadors,
bridge builders, data collectors, educators, accountability partners and champions of DEI within our brands.
Diversity by the Numbers
Diverse team members make up approximately:
•
•
•
•
75% of our total workforce and 72% of restaurant management
63% of our restaurants are owned by diverse franchisees
◦
Of the 63%, 21% are owned by women who are actively engaged in the business
Our Board of Directors consists of nine directors – 56% are from a diverse background and 44% are women
6% of our total restaurants are owned by members of the LGBTQ+ community
We believe in accountability that starts with our leadership and extends to all of our team members. We have a world class
DEI philosophy embraced by our workforce and we commit to support other companies in doing the same.
Information Technology
The mission of our Information Technology department is to align our technology strategy in support of our business strategies.
We focus on leveraging technology to drive efficiencies, simplify and standardize operations, and streamline the guest experience.
We also deliver solutions that support financial and regulatory needs in addition to necessary business improvements.
We rely on information technology systems in all aspects of our operations. At the restaurant level, systems include
point-of-sale platforms along with systems and tools for kitchen operations, labor scheduling, inventory management, cash
management and credit card transaction processing. Our technology platform includes industry-standard market solutions
as well as proprietary software and integration, yielding tools and information managers need to run efficient and effective
restaurants. We invest in new technologies and R&D efforts to improve operations and enhance the guest experience through
innovative solutions like online ordering and payment for pick-up and delivery.
At the corporate level, we have a robust Enterprise Resource Planning (“ERP”) platform that supports finance, accounting,
human resources and payroll functions. Our ERP is a cloud-based market solution, enabling us to take advantage of continual
software improvements aligned with industry best practices. We also have and are continuing to develop systems that
consolidate and report on data from our franchised and company restaurants, including transaction-level detail. These systems
are collectively supported by an enterprise network that facilitates seamless connectivity for applications and data throughout
our business infrastructure.
Our information technology systems have been designed to protect against unauthorized access and data loss. We are
continuously focused on enhancing our cybersecurity capabilities. We are required to maintain the highest level of Payment Card
Industry (“PCI”) Data Security Standard (“DSS”) compliance. We are also required to protect critical and sensitive data for our
employees, customers, and the Company. These standards are set by a consortium of major credit card companies and require
certain levels of system security and procedures to protect our customers’ credit card and other personal information. We have
deployed payment technologies that are Europay, Mastercard, Visa (“EMV”) certified, and we employ point-to-point encryption
to ensure no credit card data is stored within our restaurants. Further, we monitor franchisees’ compliance with PCI standards.
We have augmented our technology infrastructure, primarily within digital and in-restaurant systems, to support the changing
dynamics of our industry and guest expectations. These enhancements were introduced through our standard change control
mechanisms and followed prescribed standards for testing and introduction into our environment. There were no material
changes introduced into the core of our technology operating systems, and all PCI—DSS compliance standards were followed.
business resource groups include the African American Leadership Group, Asian Pacific Islander Leadership Group, Emerging
Leaders Group, Hispanic Leadership Group, LGBTQ+ Leadership Group, Veterans Leadership Group, and Women’s
Leadership Group.
Diversity Council
Our Diversity, Equity and Inclusion (“DEI”) Council collaborates on initiatives designed to renew our workplace and create
business results that will increase and strengthen the reputations of our brands, guest satisfaction and market share. The council
consists of 19 cross-functional members representing various positions throughout our organization, who serve as ambassadors,
bridge builders, data collectors, educators, accountability partners and champions of DEI within our brands.
Diversity by the Numbers
Diverse team members make up approximately:
•
•
•
•
75% of our total workforce and 72% of restaurant management
63% of our restaurants are owned by diverse franchisees
◦
Of the 63%, 21% are owned by women who are actively engaged in the business
Our Board of Directors consists of nine directors – 56% are from a diverse background and 44% are women
6% of our total restaurants are owned by members of the LGBTQ+ community
We believe in accountability that starts with our leadership and extends to all of our team members. We have a world class
DEI philosophy embraced by our workforce and we commit to support other companies in doing the same.
Information Technology
The mission of our Information Technology department is to align our technology strategy in support of our business strategies.
We focus on leveraging technology to drive efficiencies, simplify and standardize operations, and streamline the guest experience.
We also deliver solutions that support financial and regulatory needs in addition to necessary business improvements.
We rely on information technology systems in all aspects of our operations. At the restaurant level, systems include
point-of-sale platforms along with systems and tools for kitchen operations, labor scheduling, inventory management, cash
management and credit card transaction processing. Our technology platform includes industry-standard market solutions
as well as proprietary software and integration, yielding tools and information managers need to run efficient and effective
restaurants. We invest in new technologies and R&D efforts to improve operations and enhance the guest experience through
innovative solutions like online ordering and payment for pick-up and delivery.
At the corporate level, we have a robust Enterprise Resource Planning (“ERP”) platform that supports finance, accounting,
human resources and payroll functions. Our ERP is a cloud-based market solution, enabling us to take advantage of continual
software improvements aligned with industry best practices. We also have and are continuing to develop systems that
consolidate and report on data from our franchised and company restaurants, including transaction-level detail. These systems
are collectively supported by an enterprise network that facilitates seamless connectivity for applications and data throughout
our business infrastructure.
Our information technology systems have been designed to protect against unauthorized access and data loss. We are
continuously focused on enhancing our cybersecurity capabilities. We are required to maintain the highest level of Payment Card
Industry (“PCI”) Data Security Standard (“DSS”) compliance. We are also required to protect critical and sensitive data for our
employees, customers, and the Company. These standards are set by a consortium of major credit card companies and require
certain levels of system security and procedures to protect our customers’ credit card and other personal information. We have
deployed payment technologies that are Europay, Mastercard, Visa (“EMV”) certified, and we employ point-to-point encryption
to ensure no credit card data is stored within our restaurants. Further, we monitor franchisees’ compliance with PCI standards.
We have augmented our technology infrastructure, primarily within digital and in-restaurant systems, to support the changing
dynamics of our industry and guest expectations. These enhancements were introduced through our standard change control
mechanisms and followed prescribed standards for testing and introduction into our environment. There were no material
changes introduced into the core of our technology operating systems, and all PCI—DSS compliance standards were followed.
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In addition to technology changes in direct response to changing business and guest expectations, we have benefited from
our prior focus and investments in various technology platforms over the past few years. These investments include our ERP
platform and enterprise communication and collaboration tools, which prepared us to make a quick transition from a centralized
to a remote workforce during the COVID-19 pandemic with no significant additional risk or negative impact to business
processing and continuity. These same investments that allowed us to transition to a remote workforce continue to support
a hybrid wok environment under which many of our employees split time between working centrally and remotely.
In 2022, upon the acquisition of Keke’s, we integrated Keke’s systems and data into the enterprise systems currently employed.
All Keke’s business leaders and employees outside the physical restaurant were provided with workstations that meet our
existing standards for security and performance. Work is underway with Keke’s leadership to prioritize additional technology
investments within the restaurants to support the needs of the brand, while also continuing the focus on security, scalability,
and standardization.
See “Risk Factors” for further information regarding Information Technology.
Seasonality
Restaurant sales are generally higher in the second and third calendar quarters (April through September) than in the fourth and
first calendar quarters (October through March). Additionally, severe weather, storms and similar conditions may impact sales
volumes seasonally in some operating regions.
Trademarks and Service Marks
Through our wholly-owned subsidiaries, we have certain trademarks and service marks registered with the United States
Patent and Trademark Office and in international jurisdictions, including, but not limited to, “Denny’s®,” and “Keke’s
Breakfast Cafe®.” We consider our trademarks and service marks important to the identification of our company and
franchised restaurants and believe they are of material importance to the conduct of our business. In addition, we have
registered various domain names on the internet that incorporate certain of our trademarks and service marks. We believe
these domain name registrations are an integral part of our identity. From time to time, we may resort to legal measures to
defend and protect the use of our intellectual property. Generally, with appropriate renewal and use, the registration of our
service marks and trademarks will continue indefinitely.
Competition
The restaurant industry is highly competitive. Restaurants compete on the basis of name recognition and advertising; the
price, quality, variety and perceived value of their food offerings; the quality and speed of their guest service; the location
and attractiveness of their facilities; and the convenience of to-go ordering and delivery options.
Our direct competition in the full-service category includes a collection of national and regional chains, as well as thousands
of independent operators. We also compete with quick service restaurants as they attempt to upgrade their menus with premium
sandwiches, entrée salads, new breakfast offerings and extended hours as well as grocery store chains as they enhance their
ready-to-eat offerings to consumers.
We believe we have a number of competitive strengths, including strong brand recognition, well-located restaurants and market
penetration. We benefit from economies of scale in a variety of areas, including advertising, purchasing and distribution. Additionally,
we believe that we have competitive strengths in the value, variety and quality of our food products, and in the quality and
training of our employees. See “Risk Factors” for additional factors relating to our competition in the restaurant industry.
Economic, Market and Other Conditions
The restaurant industry is affected by many factors, including changes in national, regional and local economic conditions
affecting consumer spending; the political environment (including acts of war and terrorism); changes in customer travel
patterns including changes in the price of gasoline; changes in socio-demographic characteristics of areas where restaurants are
located; changes in consumer tastes and preferences; food safety and health concerns; outbreaks of flu or other viruses
(such as the coronavirus) or other diseases; increases in the number of restaurants; and unfavorable trends affecting restaurant
operations, such as rising wage rates, health care costs, utility expenses and unfavorable weather. See “Risk Factors” for
additional information.
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Government Regulations
We and our franchisees are subject to federal, state, local and international laws and regulations governing various aspects
of the restaurant business, such as compliance with various minimum wage, overtime, health care, sanitation, food safety,
citizenship, and fair labor standards, as well as laws and regulations relating to safety, fire, zoning, building, consumer
protection and taxation. We are subject to a variety of federal, state, and international laws governing franchise sales and
the franchise relationship, as well as judicial and administrative interpretations of such laws.
Following the World Health Organization’s declaration of the COVID-19 pandemic on March 11, 2020, federal, state and
local governments responded by implementing restrictions on travel, “stay at home” directives, “social distancing” guidance,
limitations of dine-in food service, and mandated dining room closures which collectively had a significant adverse impact
on the Company’s business performance, results of operations and cash flows for the years ended December 29, 2021 and
December 30, 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a
more detailed discussion.
The operation of our franchise system is also subject to regulations enacted by a number of states and rules promulgated by
the Federal Trade Commission. Such regulations impose registration and disclosure requirements on franchisors in the offer
and sale of franchises and may also apply substantive standards to the relationship between franchisor and franchisee, including
limitations on the ability of franchisors to terminate or alter franchise agreements. Due to our international franchising, we are
subject to governmental regulations throughout the world impacting the way we do business with our international franchisees.
These include antitrust and tax requirements, anti-boycott regulations, import/export/customs and other international trade
regulations, the USA Patriot Act and the Foreign Corrupt Practices Act.
We believe we are in material compliance with applicable laws and regulations, but we cannot predict the effect on operations
of the enactment of additional regulations in the future.
We have implemented various aspects of The Patient Protection and Affordable Care Act and the Health Care and Education
Affordability Reconciliation Act. However, the law or other related requirements may change.
See “Risk Factors” for a discussion of risks related to governmental regulation of our business.
Information about our Executive Officers
The following table sets forth information with respect to each executive officer as of the filing date of this report:
Name
Age
Positions
John W. Dillon
51
President, Denny’s Inc.
Stephen C. Dunn
58 Executive Vice President and Chief Global Development Officer
Michael L. Furlow
65 Executive Vice President and Chief Information Officer
Jay C. Gilmore
53
Senior Vice President, Chief Accounting Officer and Corporate Controller
Gail Sharps Myers
53 Executive Vice President, Chief Legal Officer, Chief People Officer and Secretary
Kelli F. Valade
53 Chief Executive Officer
Robert P. Verostek
51 Executive Vice President and Chief Financial Officer
Mr. Dillon has been President of Denny’s Inc. since September 2022. He previously served as Executive Vice President and
Chief Brand Officer from February 2020 to September 2022, as Senior Vice President and Chief Brand Officer from December
2018 to February 2020, as Senior Vice President and Chief Marketing Officer from October 2014 to December 2018, as Vice
President, Brand and Field Marketing from June 2013 to October 2014 and as Vice President, Marketing from July 2008 to
June 2013.
Mr. Dunn has been Executive Vice President and Chief Global Development Officer since April 2021. He previously served as
Senior Vice President and Chief Global Development Officer from July 2015 to April 2021, as Senior Vice President, Global
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Development from April 2011 to July 2015 and as Vice President, Company and Franchise Development from September 2005
to April 2011.
Mr. Furlow has been Executive Vice President and Chief Information Officer since April 2021. He previously served as Senior
Vice President and Chief Information Officer from April 2017 to April 2021. Prior to joining the Company, he served as Chief
Information Officer and Senior Vice President of IT at Red Robin Gourmet Burgers, Inc. from October 2015 to April 2017 and
as Chief Information Officer and Senior Vice President of IT of CEC Entertainment, Inc. (an operator and franchisor of Chuck
E. Cheese’s and Peter Piper Pizza) from May 2011 to February 2015.
Mr. Gilmore has been Senior Vice President, Chief Accounting Officer and Corporate Controller since February 2021. He
previously served as Vice President, Chief Accounting Officer and Corporate Controller from May 2007 to February 2021.
Ms. Sharps Myers has been Executive Vice President, Chief Legal Officer, Chief People Officer and Secretary since February
2021. She previously served as Senior Vice President, General Counsel and Secretary from June 2020 to February 2021. Prior
to joining the Company, she served as Executive Vice President, General Counsel, Chief Compliance Officer and Secretary of
American Tire Distributors, Inc. from May 2018 to May 2020, as Senior Vice President, General Counsel and Secretary at
Snyder’s-Lance, Inc. from January 2015 to March 2018 and as Senior Vice President, Deputy General Counsel, Chief
Compliance Counsel and Assistant Secretary from 2014 to 2015 at US Foods, Inc. (capping off a 10-year career there).
Ms. Valade has been Chief Executive Officer since September 2022. She joined the Company first serving as Chief Executive
Officer and President from June 2022 to September 2022 and became a member of our Board of Directors in July 2022. Prior
to joining the Company, she served as Chief Executive Officer of Red Lobster from August 2021 to April 2022, as Chief
Executive Officer and President of Black Box Intelligence (the leading data and insights provider of workforce, guest,
consumer and financial performance benchmarks for the hospitality industry) from January 2019 to July 2021, and as Chili’s
Brand President from June 2016 to October 2018.
Mr. Verostek has been Executive Vice President and Chief Financial Officer since February 2021. He previously served as
Senior Vice President and Chief Financial Officer from February 2020 to February 2021, as Senior Vice President, Finance
from October 2016 to February 2020 and as Vice President, Financial Planning & Analysis and Investor Relations from
January 2012 to October 2016.
Available Information
We make available free of charge through our website at investor.dennys.com (in the SEC Filings section) copies of materials
that we file with, or furnish to, the Securities and Exchange Commission (“SEC”), including our Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, as soon as reasonably
practicable after we electronically file such materials with, or furnish them to, the SEC. The SEC also maintains an internet
website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that
file electronically with the SEC. In addition, we have made available on our website (in the Corporate Governance - Code of
Conduct section) our code of ethics entitled “Denny’s Code of Conduct” which is applicable to the Company’s Chief Executive
Officer, Chief Financial Officer, Chief Accounting Officer and Corporate Controller, all other executive officers, key financial
and accounting personnel and each salaried employee of the Company.
We will post on our website any amendments to, or waivers from, a provision of the Denny’s Code of Conduct that applies to
the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Corporate Controller or persons performing
similar functions, and that relates to (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts
of interest between personal and professional relationships; (ii) full, fair, accurate, timely, and understandable disclosure in
reports and documents that we file with, or submit to, the SEC and in other public communications made by us; (iii) compliance
with applicable governmental laws, rules and regulations; (iv) the prompt internal reporting of violations of Denny’s Code of
Conduct to an appropriate person or persons identified in the code; or (v) accountability to adherence to the code.
Item 1A. Risk Factors
Various risks and uncertainties could affect our business. Any of the risk factors described below or elsewhere in this report
or our other filings with the SEC could have a material and adverse impact on our business, financial condition and results of
operations. In any such event, the trading price of our common stock could decline. It is not possible to predict or identify all
risk factors. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also
impair our business operations.
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Risks Related to Macroeconomic Conditions Resulting from the COVID-19 Pandemic
The COVID-19 pandemic has disrupted and could continue to disrupt our business, which could continue to have a material
adverse impact on our business, results of operations, liquidity and financial condition for an extended period of time.
The outbreak of COVID-19 has had a material adverse effect on our business, results of operations, liquidity and financial
condition. In 2020 and continuing through 2022, the continuing effects of the COVID-19 pandemic significantly impacted the
economy in general, and our business specifically, and it could continue to negatively affect our business in a number of ways.
These effects could include, but are not limited to:
•
•
•
•
inability of individual restaurants to return to full operating hours due to availability of employees
or the inability to attract, retain and incentivize our employees;
failure of third parties on which we rely, including our franchisees and suppliers, to meet their respective
obligations to the Company, or significant disruptions in their ability to do so, which may be caused by
their own financial or operational difficulties or issues with the regional or national supply chain;
volatility of commodity costs; and
disruptions or uncertainties for a sustained period of time which could hinder our ability to achieve our
strategic goals and our ability to meet financial obligations as they come due.
The extent to which the effects of the COVID-19 pandemic, or other outbreaks of disease or similar public health threats,
materially and adversely impacts our business, results of operations, liquidity and financial condition is highly uncertain and
will depend on future developments. Such developments may include the geographic spread and duration of this or other health
threats, the development of new variants of this or other viruses and their related severity, and the actions that may be taken by
various governmental authorities and other third parties in response to future outbreaks.
The effects of the COVID-19 pandemic on our business could be long-lasting and could continue to have adverse effects on
our business, results of operations, liquidity, cash flows and financial condition, some of which may be significant, and may
adversely impact our ability to operate our business on the same terms as we conducted business prior to the pandemic even
after our restaurants fully reopen.
Risks Related to Restaurant Operations and the Restaurant Industry
The restaurant business is highly competitive, and if we are unable to compete effectively, our business will be
adversely affected.
Each of our company and franchised restaurants competes with a wide variety of restaurants ranging from national and regional
restaurant chains to locally owned restaurants. The following are important aspects of competition:
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•
•
•
•
•
•
•
•
•
•
restaurant location;
advantageous commercial real estate suitable for restaurants;
number and location of competing restaurants;
attractiveness and repair and maintenance of facilities;
ability to develop and support evolving technology to deliver a consistent and compelling guest experience;
food quality, new product development and value;
dietary trends, including nutritional content;
training, courtesy and hospitality standards;
ability to attract and retain high quality staff;
quality and speed of service; and
the effectiveness of marketing and advertising programs, including the effective use of social media
platforms and digital marketing initiatives.
Our returns and profitability may be negatively impacted by a number of factors, including those described below.
Food service businesses and the performance of company and franchised restaurants may be materially and adversely affected
by factors such as:
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•
•
•
•
•
•
•
consumerconsumer preferences, including nutritional and dietary concerns;
spending habits;
global, national, regional and local economic conditions;
demographic trends;
traffic patterns;
the type, number and location of competing restaurants; and
the ability to renew leased properties on commercially acceptable terms, if at all.
Dependence on frequent deliveries of fresh produce and other food products subjects food service businesses to the risk that
shortages or interruptions in supply caused by adverse weather, food safety warnings, animal disease outbreak or other conditions
beyond our control could adversely affect the availability, quality and cost of ingredients. Our inability to effectively manage
supply chain risk could increase our costs and limit the availability of products critical to restaurant operations.
In addition, the food service industry in general, and our results of operations and financial condition in particular, may be adversely
affected by unfavorable trends or developments, especially in the periods following the COVID-19 pandemic, such as:
•
•
•
•
•
•
•
•
volatility in certain commodity markets;
increased food costs;
health concerns arising from food safety issues and other food-related pandemics,
outbreaks of flu or viruses, such as coronavirus, or other diseases;
increased energy costs;
labor and employee benefits costs (including increases in minimum hourly wage,
employment tax rates, health care costs and workers’ compensation costs);
regional weather conditions;
the availability of experienced management and hourly employees; and
other general inflation impacts.
Operating results that are lower than our current estimates may cause us to incur impairment charges on certain long-lived
assets and potentially close certain restaurants.
The financial performance of our franchisees can negatively impact our business.
As we are heavily franchised, our financial results are contingent upon the operational and financial success of our franchisees.
We receive royalties, advertising contributions and, in some cases, lease payments from our franchisees. While our franchise
agreements are designed to require our franchisees to maintain brand consistency, the significant percentage of franchise-operated
restaurants may expose us to risks not otherwise encountered if we maintained ownership and control of the restaurants. If
our franchisees do not successfully operate their restaurants in a manner consistent with our standards, or if customers have
negative experiences due to issues with food quality or operational execution at our franchised locations, our brands could be
harmed, which in turn could negatively impact our business. Additional risks include:
•
•
•
•
•
franchisee defaults on their obligations to us arising from financial or other difficulties encountered by
them, such as the inability to pay financial obligations including royalties, rent on leases on which we
retain contingent liability, and certain loans;
limitations on enforcement of franchisee obligations due to bankruptcy or insolvency proceedings;
the inability to participate in business strategy changes due to financial constraints;
failure to operate restaurants in accordance with required standards, including food quality and safety; and
impacts of the financial performance of other businesses operated by franchisees on the overall financial
performance and condition of the franchisee.
If a significant number of franchisees become financially distressed, it could harm our operating results. For 2022, our ten
largest franchisees accounted for approximately 37% of our total franchise and license revenue. The balance of our franchise
revenue was derived from the remaining 233 Denny’s and Keke’s franchisees.
The locations of company and franchised restaurants may cease to be attractive as demographic patterns change.
The success of our company and franchised restaurants is significantly influenced by location. Current locations may not
continue to be attractive as demographic patterns change. It is possible that economic or other conditions where restaurants
are located could decline in the future, potentially resulting in reduced sales at those locations.
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Food safety and quality concerns may negatively impact our business and profitability.
Incidents or reports of foodborne or waterborne illness, or other food safety issues, food contamination or tampering, employee
hygiene and cleanliness failures, improper employee conduct, or presence of communicable disease at our restaurants or suppliers
could lead to product liability or other claims. Such incidents or reports could negatively affect our brands and reputation, and
a decrease in customer traffic resulting from these reports could negatively impact our revenues and profits. Similar incidents
or reports occurring at other restaurant brands unrelated to us could likewise create negative publicity, which could negatively
impact consumer behavior towards us. In addition, if a regional or global health pandemic occurs, depending upon its location,
duration and severity, our business could be severely affected.
We rely on our domestic and international vendors, as do our franchisees, to provide quality ingredients and to comply with
applicable laws and industry standards. A failure of one of our domestic or international vendors to meet our quality standards,
or meet domestic or international food industry standards, could result in a disruption in our supply chain and negatively impact
our brand and our business and profitability. Our inability to manage an event such as a product recall or product related
litigation could also cause our results to suffer.
Unfavorable publicity, or a failure to respond effectively to adverse publicity, could harm the reputations of our brands.
Multi-unit food service businesses such as ours can be materially and adversely affected by widespread negative publicity
of any type, including food safety, outbreak of flu or viruses (such as coronavirus) or other health concerns, criminal activity,
guest discrimination, harassment, employee relations or other operating issues. The increasing use of social media platforms
has increased the speed and scope of unfavorable publicity and could hinder our ability to quickly and effectively respond to
such reports. Regardless of whether the allegations or complaints are accurate or valid, negative publicity relating to a
particular restaurant or a limited number of restaurants could adversely affect public perception of any of our brands.
A decline in general economic conditions could adversely affect our financial results.
Consumer spending habits, including discretionary spending on dining at restaurants such as ours, are affected by many
factors including:
•
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•
•
•
•
prevailing economic conditions, including interest rates;
energy costs, especially gasoline prices;
inflationary pressures, including grocery prices;
levels of employment;
salaries and wage rates, including tax rates; and
consumer confidence.
Weakness or uncertainty regarding the economy, both domestic and international, as a result of reactions to consumer credit
availability, increasing energy prices, inflation, increasing interest rates, unemployment, war, terrorist activity or other unforeseen
events could adversely affect consumer spending habits, which may result in lower operating revenue.
If we fail to recruit, develop and retain talented employees, our business could suffer.
Our future success significantly depends on the continued services and performance of our key management personnel.
Our future performance will depend on our ability to attract, motivate and retain these and other key officers and key team
members, particularly regional and area managers and restaurant general managers. Competition for these employees is intense.
If we fail to attract or retain key officers and team members, our succession planning and operations could be materially and
adversely affected. We continue to recruit, retain and motivate management and other employees sufficiently to maintain our
current business and support our projected growth. We have experienced and may continue to experience challenges in
recruiting and retaining team members in various locations.
Risks Related to Development Strategies
Our growth strategy depends on our ability and that of our franchisees to open new restaurants. Delays or failures
in opening new restaurants could adversely affect our planned growth and operating results.
12
The development of new restaurants may be adversely affected by risks such as:
•
•
•
•
•
•
•
•
•
•
•
inability to identify suitable franchisees;
costs and availability of capital for the Company and/or franchisees;
competition for restaurant sites;
negotiation of favorable purchase or lease terms for restaurant sites;
inability to obtain all required governmental approvals and permits;
delays in completion of construction;
cost of materials;The development of new restaurants may be adversely affected by risks such as:
challenge of identifying, recruiting and training qualified restaurant managers;
developed restaurants not achieving the expected revenue or cash flow once opened;
challenges specific to the growth of international operations that are different from domestic development; and
general economic conditions.
Our brand’s expansion into international markets may present increased risks due to lower customer awareness
of our brand, our unfamiliarity with those markets and other factors.
The international markets in which our franchisees currently operate, and any additional markets our franchisees may enter
outside of the United States, have many differences compared to our domestic markets. There may be lower consumer
familiarity with the Denny’s brand in these markets, as well as different competitive conditions, consumer tastes and economic,
political and health conditions. Additionally, there are risks associated with sourcing quality ingredients and other commodities
in a cost-effective and timely manner. As a result, franchised international restaurants may take longer to reach expected sales
and profit levels, or may never do so, thereby affecting the brand’s overall growth and profitability. Building brand awareness
may take longer than expected, which could negatively impact our profitability in those markets.
We are subject to governmental regulations in our international markets impacting the way we do business with our
international franchisees. These include antitrust and tax requirements, anti-boycott regulations, import/export/customs and
other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Failure to comply with any
such legal requirements could subject us to monetary liabilities and other sanctions, which could adversely impact our results
of operations and financial condition.
Legal and Regulatory Risks
Litigation may adversely affect our business, financial condition and results of operations.
We are subject to the risk of, or are involved in from time to time, complaints or litigation brought by former, current or
prospective employees, customers, franchisees, vendors, landlords, regulatory agencies, shareholders or others. We assess
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 if it is probable that a liability has been incurred and the amount of loss can be
reasonably estimated. Because lawsuits are inherently unpredictable and unfavorable resolutions could occur, assessing
contingencies is highly subjective and requires judgments about future events. We regularly review contingencies to determine
the adequacy of the accruals and related disclosures. However, the amount of ultimate loss may differ from these estimates.
A judgment that is not covered by insurance or that is significantly in excess of our insurance coverage for any claims could
materially adversely affect our financial condition or results of operations. In addition, regardless of whether any claims
against us are valid or whether we are found to be liable, claims may be expensive to defend, and may divert management’s
attention away from operations and hurt our performance. Further, adverse publicity resulting from claims may harm our
business or that of our franchisees.
Our amended and restated by-laws provide that the Court of Chancery of the State of Delaware will be the exclusive
forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our amended and restated by-laws provide that consistent with the applicable provisions of the Delaware General Corporation
Law (the “DGCL”), unless our Board of Directors, acting on behalf of the Company, consents in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any and all internal
corporate claims, including but not limited to:
•
•
any derivative action or proceeding brought on our behalf;
any action asserting a claim of breach of fiduciary duty owed by any stockholder, director,
officer, other employee or stockholder of the Company to us or our stockholders;
13
•
•
any action arising pursuant to any provision of the DGCL or as to which the DGCL confers jurisdiction
on the Court of Chancery of the State of Delaware; and
any action asserting a claim against us that is governed by the internal affairs doctrine.
These provisions would not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) or any claim for which the federal district courts of the United States of America have
exclusive jurisdiction. Furthermore, Section 22 of the Securities Act of 1933, as amended (the “Securities Act”) creates concurrent
jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have
jurisdiction to entertain such claims.
Our stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any
person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice
of, and consented to, the provisions of our amended and restated by-laws described in the preceding sentences.
While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may
nevertheless seek to bring a claim in a venue other than that designated in the exclusive forum provisions. In such instance,
we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and
restated by-laws. This may require significant additional costs associated with resolving such action in other jurisdictions,
and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
This choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable
for disputes with us or our directors, officers, or other employees. If any other court of competent jurisdiction were to find the
exclusive-forum provision in our amended and restated by-laws to be inapplicable or unenforceable, we may incur additional
costs associated with resolving the dispute in other jurisdictions.
Numerous government regulations impact our business, and our failure to comply with them could adversely affect
our business.
We are subject to federal, state, local and international laws and regulations governing, among other things:
•
•
•
•
•
preparation, labeling, advertising and sale of food;
sanitation;
health and fire safety;
land use, sign restrictions and environmental matters, including those associated with efforts to address climate change;
employee health care requirements, including the implementation and uncertain legal, regulatory and cost implications
of the health care reform law;
• management and protection of the personnel data of our guests, employees and franchisees;
•
•
•
•
payment card regulation and related industry rules;
the sale of alcoholic beverages;
hiring and employment practices, including minimum wage and tip credit laws and fair labor standards; and
Americans with Disabilities Act.
A substantial number of our employees are paid the minimum wage. Accordingly, increases in the minimum wage or decreases
in the allowable tip credit (which reduces wages deemed to be paid to tipped employees in certain states) increase our labor
costs. We have attempted to offset increases in the minimum wage through pricing and various cost control efforts; however,
there can be no assurance that we will be successful in these efforts in the future.
The operation of our franchisee system is also subject to regulations enacted by a number of states and rules promulgated by
the Federal Trade Commission. Due to our international franchising, we are subject to governmental regulations throughout
the world impacting the way we do business with our international franchisees. These include antitrust and tax requirements,
anti-boycott regulations, import/export/customs and other international trade regulations, the USA Patriot Act and the Foreign
Corrupt Practices Act. Additionally, given our significant concentration of restaurants in California, changes in regulations in
that state could have a disproportionate impact on our operations. If we or our franchisees fail to comply with these laws and
regulations, we or our franchisees could be subjected to restaurant closure, fines, penalties and litigation, which may be costly
and could adversely affect our results of operations and financial condition. In addition, the future enactment of additional
legislation regulating the franchise relationship could adversely affect our operations.
We have implemented various aspects of The Patient Protection and Affordable Care Act and the Health Care and Education
Affordability Reconciliation Act. However, the law or other related requirements may change.
14
We are also subject to federal, state, local and international laws regulating the offer and sale of franchises. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale of franchises, and may contain provisions that
supersede the terms of franchise agreements, including limitations on the ability of franchisors to terminate franchises and alter
franchise arrangements.
Existing and changing legal and regulatory requirements, as well as an increasing focus on environmental, social and
governance issues, could adversely affect our brand, business, results of operations and financial condition.
There has been increasing public focus by investors, environmental activists, the media and governmental and nongovernmental
organizations on social and environmental sustainability matters, including packaging and waste, animal health and welfare,
human rights, climate change, greenhouse gases and land, energy and water use. As a result, not only have we experienced
increased pressure from our shareholders but they now have a heightened level of expectation for us to provide expanded
disclosure and make commitments, establish goals or set targets with respect to various environmental and social issues and
to take the actions necessary to meet those commitments, goals and targets. If we are not effective in addressing social and
environmental sustainability matters, consumer trust in our brand may suffer. In addition, the actions needed to achieve our
commitments, goals and targets could result in market, operational, execution and other costs, which could have a material
adverse effect on our results of operations and financial condition. Our results of operations and financial condition could
be adversely impacted if we are unable to effectively manage the risks or costs to us, our franchisees and our supply chain
associated with social and environmental sustainability matters.
Being liable as a joint employer could adversely affect our business
Joint employer status is a developing area of franchise and labor and employment law that could be subject to changes in
legislation, administrative agency interpretation or jurisprudential developments that may increase franchisor liability in the future.
In September 2022, the National Labor Relations Board proposed a new rule that would allow a party asserting a joint-employment
relationship to establish joint-employer status by using evidence of indirect and reserved forms of control bearing on an employee’s
essential terms and conditions of employment. If this broader standard were to be adopted, we could potentially be liable for unfair
labor practices and other violations by franchisees or we could be required to conduct collective bargaining negotiations regarding
employees of franchisees, who are independent employers. In such event, our operating costs may increase as a result of required
modifications to business practices, increased litigation, governmental investigations or proceedings, administrative enforcement
actions, fines and civil liability. Employee claims that are brought against us as a result of joint employer standards and status may
also, in addition to legal and financial liability, create negative publicity that could adversely affect our brands and divert financial
and management resources. A significant increase in the number of these claims, or an increase in the number of successful claims,
could adversely impact the reputation of our brands, which may cause significant harm.
If our internal controls are ineffective, we may not be able to accurately report our financial results or prevent fraud.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal
control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for
external purposes in accordance with accounting principles generally accepted in the United States. We maintain a documented
system of internal controls which is reviewed and tested by the Company’s full time Internal Audit department. The Internal
Audit department reports directly to the Audit and Finance Committee of the Board of Directors. Because of its inherent
limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect
a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial
reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud.
A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss
of investor confidence and decline in the market price of our common stock.
Changes to existing accounting rules or the questioning of current accounting practices may adversely affect our
reported financial results.
A change in accounting standards can have a significant effect on our reported financial results. New pronouncements and
varying interpretations of pronouncements have occurred and may occur in the future. Additionally, generally accepted accounting
principles and related accounting pronouncements, implementation guidelines and interpretations are highly complex and involve
many subjective assumptions, estimates and judgments by us. Changes in these principles or their interpretations or changes in
underlying assumptions, estimates and judgments by us could significantly change our reported or expected financial performance.
15
Information Technology Risks
Failure of computer systems, information technology, or the ability to provide a continuously secure network,
or cyber attacks against our computer systems, could result in material harm to our reputation and business.
We and our franchisees rely heavily on computer systems and information technology to conduct business and operate
efficiently. We have instituted monitoring controls intended to protect our computer systems, our point-of-sale systems and
our information technology platforms and networks against external threats. Those controls include an annual proactive risk
assessment, advanced comprehensive analysis of data threats, identification of business email compromise and proper security
awareness education. The Audit & Finance Committee of our Board of Directors has oversight responsibility related to our
cybersecurity risk management programs and periodically reviews reports on cybersecurity metrics, data privacy and other
information technology risks.
We receive and maintain certain personal information about our guests, employees and franchisees. Our use of this information
is subject to international, federal and state regulations, as well as conditions included in certain third-party contracts. If our
cybersecurity is compromised and this information is obtained by unauthorized persons or used inappropriately, it could
adversely affect our reputation, operations, results of operations and financial condition, and could result in litigation against
us or the imposition of penalties. As privacy and information security laws and regulations change or cyber risks evolve, we
may incur additional costs to ensure we remain compliant.
A material system failure or interruption, a breach in the security of our information technology systems caused by a cyber
attack, or other failure to maintain a secure cyber network could result in reduced efficiency in our operations, loss or
misappropriation of data, business interruptions, or could impact delivery of food to restaurants or financial functions such as
vendor payment or employee payroll. We have disaster recovery and business continuity plans that are designed to anticipate
and mitigate such failures, but it is possible that significant capital investment could be required to rectify these problems, or
more likely that cash flows could be impacted, in the shorter term.
We rely on third parties for certain business processes and services. Failure or inability of such third-party vendors
to perform subjects us to risks, including business disruption and increased costs.
We depend on suppliers and other third parties for the operation of certain aspects of our business. Some third-party business
processes we utilize include information technology, payment processing, gift card authorization and processing, employee
benefits, third-party delivery and other business services. We conduct third-party due diligence and seek to obtain contractual
assurance that our vendors will maintain adequate controls, such as adequate security against data breaches. However, the
failure of our suppliers to maintain adequate controls or comply with our expectations and standards could have a material
adverse effect on our business, financial condition and operating results.
Risks Related to Indebtedness
Changes in the method used to determine LIBOR rates and the phasing out of LIBOR may affect our financial results.
Borrowings under our credit facility bear interest at variable rates based on LIBOR. In addition, we have interest rate swaps
designated as cash flow hedges of our exposure to variability in future cash flows attributable to payments of LIBOR due on
forecasted notional debt obligations. LIBOR and certain other interest “benchmarks” may be subject to regulatory guidance
and/or reform that could cause interest rates under our current or future debt agreements and interest rate swaps to perform
differently than in the past or cause other unanticipated consequences. The Financial Conduct Authority (“FCA”), the authority
that regulates LIBOR, announced it intends to cease all such rates by mid-2023. The Alternative Reference Rates Committee
("ARRC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the rate that represents best practice as the
alternative to USD-LIBOR for use in debt and derivative financial instruments. Although an alternative to LIBOR has been
contemplated in The New Credit Facility, it is unclear as to the new method of calculating LIBOR that may evolve, and this
new method could adversely affect the Company’s interest rates on current or future debt obligations and interest rate swaps.
16
Our indebtedness could have an adverse effect on our financial condition and operations.
As of December 28, 2022, we had total indebtedness of $272.7 million, including finance leases. Although we believe that
our existing cash balances, funds from operations and amounts available under our credit facility will be adequate to cover our
cash flow and liquidity needs, we could seek additional sources of funds, including incurring additional debt or through the sale
of real estate, to maintain sufficient cash flow to fund our ongoing operating needs, pay interest and scheduled debt amortization
and fund anticipated capital expenditures. We have no material debt maturities scheduled until August 2026. The credit agreement
governing most of our indebtedness contains various covenants that could have an adverse effect on our business by limiting
our ability to take advantage of financing, merger, acquisition or other corporate opportunities and to fund our operations.
Restrictions under our credit agreement could also restrict our ability to repurchase shares in the future. If we incur additional
debt in the future, covenant limitations on our activities and risks associated with such increased debt levels generally could
increase. If we are unable to satisfy or refinance our current debt as it comes due, we may default on our debt obligations and
lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to
extend further credit. For additional information concerning our indebtedness see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
Risks Related to our Common Stock
Many factors, including those over which we have no control, affect the trading price of our common stock.
Factors such as reports on the economy or the price of commodities, as well as negative or positive announcements by
competitors, regardless of whether the report directly relates to our business, could have an impact on the trading price of our
common stock. In addition to investor expectations about our prospects, trading activity in our common stock can reflect the
portfolio strategies and investment allocation changes of institutional holders, as well as non-operating initiatives such as our
share repurchase programs. Evolving business strategies or any failure to meet market expectations whether for same-store
sales, restaurant unit growth, earnings per share, or other metrics could cause our share price to decline.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Most Denny’s restaurants are free-standing facilities with property sizes averaging approximately one acre. The restaurant
buildings average between 3,800 - 5,000 square feet, allowing them to accommodate an average of 110 - 170 guests. Most
Keke’s restaurants are attached to shopping centers. The restaurant buildings average between 4,000 - 5,000 square feet,
allowing them to accommodate an average of 135 - 170 guests.
17
The number and location of our restaurants as of December 28, 2022 are presented below:
United States - Denny’s
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total Domestic - Denny’s
Company
Franchised /
Licensed
Total
—
—
1
—
22
—
—
—
—
9
—
2
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
7
2
—
—
—
—
—
—
—
—
—
—
3
—
—
14
—
2
2
—
—
—
—
66
7
1
84
10
343
19
5
1
2
115
12
4
10
47
34
3
5
11
6
3
24
4
14
17
4
30
3
3
32
—
7
29
41
21
3
35
10
22
35
3
8
1
5
191
25
—
19
41
4
22
4
1,379
7
1
85
10
365
19
5
1
2
124
12
6
10
47
34
3
5
11
6
3
24
6
14
17
4
30
3
3
39
2
7
29
41
21
3
35
10
22
35
3
11
1
5
205
25
2
21
41
4
22
4
1,445
18
International - Denny’s
Canada
Costa Rica
Curacao N.V.
El Salvador
Guam
Guatemala
Honduras
Indonesia
Mexico
New Zealand
Philippines
Puerto Rico
United Arab Emirates
United Kingdom
Total International - Denny’s
Total Domestic - Denny’s
Total - Denny’s
United States - Keke’s
Florida
Total Domestic - Keke’s
Total
Company
Franchised /
Licensed
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
66
66
8
8
74
84
3
1
2
2
4
6
2
15
7
10
15
5
1
157
1,379
1,536
84
3
1
2
2
4
6
2
15
7
10
15
5
1
157
1,445
1,602
Franchised /
Licensed
Total
46
46
54
54
1,582
1,582
1,656
1,656
Company
Of our total 1,656 restaurants, our interest in restaurant properties consists of the following:
Owned properties
Leased properties
Company
Restaurants
Franchised
Restaurants
Total
16
58
74
61
153
214
77
211
288
We have generally been able to renew our restaurant leases as they expire at then-current market rates. The remaining terms
of leases range from less than one to approximately 40 years, including optional renewal periods.
Our corporate offices include an owned building in Spartanburg, South Carolina and leased buildings in Irving, Texas and in
Orlando, Florida. The Spartanburg office is an 18-story, 187,000 square foot office building where we occupy 16 floors with
a portion of the building leased to others.
See Note 10 to our Consolidated Financial Statements for information concerning encumbrances on substantially all of
our properties.
Item 3. Legal Proceedings
There are various claims and pending legal actions against or indirectly involving us, incidental to and arising out of the
ordinary course of the business. In the opinion of management, based upon information currently available, the ultimate
liability with respect to these proceedings and claims will not materially affect the Company’s consolidated results of
operations or financial position.
Item 4. Mine Safety Disclosures
Not applicable.
19
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed under the symbol “DENN” and trades on the Nasdaq Capital Market (“Nasdaq”). As of
February 23, 2023, there were 56,424,922 shares of our common stock outstanding and approximately 41,000 record
and beneficial holders of our common stock.
Dividends and Share Repurchases
Our credit facility allows for the payment of cash dividends and/or the repurchase of our common stock, subject to certain
limitations and continued maintenance of all relevant covenants before and after any such payment of any dividend or stock
purchase. An aggregate amount is available for such dividends or share repurchases as follows:
•
•
an amount not to exceed $50.0 million if the Consolidated Leverage Ratio (as defined in the credit agreement, as
amended) is 3.5x or greater and an unlimited amount if the Consolidated Leverage Ratio is below 3.5x, provided
that, in each case, at least $20.0 million of availability is maintained under the revolving credit facility after such
payment; and
an additional annual aggregate amount equal to $0.05 times the number of outstanding shares of our common
stock, as of August 16, 2021, plus each additional share of our common stock that is issued after such date.
Though we have not historically paid cash dividends, we have in recent years undertaken share repurchases. The table below
provides information concerning repurchases of shares of our common stock during the quarter ended December 28, 2022.
Period
September 29, 2022 – October 26, 2022
October 27, 2022 – November 23, 2022
November 24, 2022 – December 28, 2022
Total
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Programs (2)
Total Number
of Shares
Purchased
Average
Price Paid
Per Share (1)
(In thousands, except per share amounts)
262
51
460
773
$
$
9.85
11.53
9.96
10.45
262
51
460
773
Approximate
Dollar Value of
Shares that
May Yet be
Purchased
Under the
Programs (2)
$
$
$
157,702
157,115
152,527
(1) Average price paid per share excludes commissions.
(2) On December 2, 2019, we announced that our Board of Directors approved a new share repurchase program, authorizing
us to repurchase up to an additional $250 million of our common stock (in addition to prior authorizations). Such repurchases
may take place from time to time on the open market (including pre-arranged stock trading plans in accordance with the
guidelines specified in Rule 10b5-1 under the Exchange Act) or in privately negotiated transactions, subject to market and
business conditions. During the quarter ended December 28, 2022, we purchased 773,152 shares of our common stock for
an aggregate consideration of approximately $7.8 million pursuant to this share repurchase program.
20
Performance Graph
The following graph compares the cumulative total shareholder return on our common stock for the five fiscal years ended
December 28, 2022 (December 27, 2017 to December 28, 2022) against the cumulative total return of the Russell 2000® Index
and a peer group, selected by us, of companies that we believe compose a representative sampling of public companies in our
industry comparable to us in size and composition. We revised this peer group in 2022 to more closely reflect a representative
sampling of comparable companies in our industry. As required by SEC regulations, the following graph also shows the
cumulative return of the former peer group. The graph and table assume that $100 was invested on December 27, 2017 (the
last day of fiscal year 2017) in each of the Company’s common stock, the Russell 2000® Index and the current and former
peer groups and that all dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
ASSUMES $100 INVESTED ON DECEMBER 27, 2017
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDED DECEMBER 28, 2022
200
150
100
50
0
2017
2018
2019
2020
2021
2022
Denny’s Corporation
Former Peer Group
Russell 2000 Index
Current Peer Group
December 27, 2017
December 26, 2018
December 25, 2019
December 30, 2020
December 29, 2021
December 28, 2022
Russell 2000®
Index (1)
Current Peer
Group (2)
Former Peer
Group (3)
Denny’s
Corporation
$
$
$
$
$
$
100.00
87.26
111.72
133.69
153.33
119.04
$
$
$
$
$
$
100.00
105.53
111.48
130.52
136.60
116.55
$
$
$
$
$
$
100.00
105.41
111.65
130.40
136.25
116.81
$
$
$
$
$
$
100.00
121.34
151.12
105.30
117.16
67.16
(cid:11)(cid:20)(cid:12) The Russell 2000 Index is a broad equity market index of 2,000 companies that measures the performance of
the small-cap segment of the U.S. equity universe. As of December 28, 2022, the weighted average market
capitalization of companies within the index was approximately $2.8 billion with the median market
capitalization being approximately $1.0 billion.
(cid:11)(cid:21)(cid:12) The current peer group consists of 15 public companies that operate in the restaurant industry. The peer group
includes the following companies: BJ’s Restaurants, Inc. (BJRI), Bloomin’ Brands, Inc. (BLMN), Brinker
International, Inc. (EAT), Cracker Barrel Old Country Store, Inc. (CBRL), Del Taco Restaurants, Inc. (TACO),
Dine Brands Global, Inc. (DIN), El Pollo Loco Holdings, Inc. (LOCO), Fiesta Restaurant Group, Inc. (FRGI),
Jack in the Box Inc. (JACK), Noodles & Company (NDLS), Ruth’s Hospitality Group, Inc. (RUTH), Shake
Shack, Inc. (SHAK), Texas Roadhouse, Inc. (TXRH), The Cheesecake Factory Incorporated (CAKE), and
Wingstop Inc. (WING).
21
(3) The former peer group consists of 14 public companies that operate in the restaurant industry. The peer group
includes the following companies: BJ’s Restaurants, Inc. (BJRI), Bloomin’ Brands, Inc. (BLMN), Brinker
International, Inc. (EAT), Cracker Barrel Old Country Store, Inc. (CBRL), Del Taco Restaurants, Inc. (TACO),
Dine Brands Global, Inc. (DIN), El Pollo Loco Holdings, Inc. (LOCO), Fiesta Restaurant Group, Inc. (FRGI),
Jack in the Box Inc. (JACK), Ruth’s Hospitality Group, Inc. (RUTH), Shake Shack, Inc. (SHAK), Texas
Roadhouse, Inc. (TXRH), The Cheesecake Factory Incorporated (CAKE), and Wingstop Inc. (WING).
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Consolidated Financial Statements and the notes thereto.
Overview
We manage our business by brand and as a result have identified two operating segments, Denny’s and Keke’s. In addition,
we have identified Denny’s as a reportable segment. The Denny’s reportable segment includes the results of all company
and franchised and licensed Denny’s restaurants.
Denny’s restaurants are operated in 50 states, the District of Columbia, two U.S. territories and 12 foreign countries with
principal concentrations in California (23% of total restaurants), Texas (13%) and Florida (8%). At December 28, 2022, the
Denny’s brand consisted of 1,602 franchised, licensed and company restaurants. Of this amount, 1,536 of Denny’s restaurants
were franchised or licensed, representing 96% of the total restaurants, and 66 were company restaurants.
We acquired Keke's on July 20, 2022 for a purchase price of $82.5 million. Our Keke’s operating segment includes the results
of all company and franchised Keke’s restaurants. As of December 28, 2022, the Keke’s brand consisted of 54 franchised and
company restaurants in Florida. Of this amount, 46 Keke’s restaurants were franchised, representing 85% of total Keke’s
restaurants, and eight were company restaurants.
The primary sources of revenues for all operating segments are the sale of food and beverages at our company restaurants and
the collection of royalties, advertising revenue, initial and other fees, including occupancy revenue, from restaurants operated
by our franchisees. Sales and customer traffic at both company and franchised restaurants are affected by the success of our
marketing campaigns, new product introductions, product quality enhancements, customer service, availability of off-premise
dining options, and menu pricing, as well as external factors including competition, economic conditions affecting consumer
spending and changes in guests’ tastes and preferences. Sales at company restaurants and royalty, advertising and fee income
from franchised restaurants are also impacted by the opening of new restaurants, the closing of existing restaurants, the sale
of company restaurants to franchisees and the acquisition of restaurants from franchisees.
Costs of company restaurant sales are exposed to volatility in two main areas: payroll and benefit costs and product costs.
This volatility has been especially impactful during and in the periods following the COVID-19 pandemic. The volatility of
payroll and benefit costs results primarily from changes in wage rates and increases in labor related expenses, such as medical
benefit costs and workers’ compensation costs. Additionally, changes in guest counts and investments in store-level labor
impact payroll and benefit costs as a percentage of sales. Many of the products sold in our restaurants are affected by
commodity pricing and are, therefore, subject to price volatility. This volatility is caused by factors that are fundamentally
outside of our control and are often unpredictable. In general, we purchase food products based on market prices or we set
firm prices in purchase agreements with our vendors. In an inflationary commodity environment, our ability to lock in
prices on certain key commodities is imperative to controlling food costs. In addition, our continued success with menu
management helps us offer menu items that provide a compelling value to our customers while maintaining attractive
product costs and profitability. Packaging costs and delivery fees (included as a component of other operating expenses)
also fluctuate with changes in delivery and off-premise sales.
Our fiscal year ends on the last Wednesday in December. As a result, a fifty-third week is added to a fiscal year every five
or six years. Fiscal 2022 and 2021 each included 52 weeks of operations, whereas 2020 included 53 weeks of operations.
We estimate that the additional operating week added approximately $6.3 million of operating revenue in 2020.
22
Factors Impacting Comparability
For 2022, 2021 and 2020, the following items impacted the comparability of our results:
•
•
•
•
•
Company restaurant sales increased from $118.2 million in 2020 to $175.0 million in 2021 and $199.8 million in 2022,
primarily from our progressive recovery from the COVID-19 pandemic that began in 2020.
Royalty income, which is included as a component of franchise and license revenue, increased from $67.5 million in
2020 to $103.4 million in 2021 and $113.9 million in 2022, also related to our recovery from the COVID-19 pandemic.
Initial and other fees increased from $7.3 million in 2020 and $8.0 million in 2021 to $28.3 million in 2022. This increase
was the result of a kitchen modernization program that began in early 2022. We bill our franchisees and recognize revenue
when the related equipment is installed with a like amount recorded as a component of other direct costs. The majority of
the installations were completed in 2022. Therefore, initial and other fees are expected to be significantly lower in 2023
as a result of the reduced impact of this program.
Occupancy revenues, included as a component of franchise and license revenue, result from leasing or subleasing
restaurants to franchisees. When restaurants are sold and leased or subleased to franchisees, the occupancy costs related
to these restaurants move from costs of company restaurant sales to costs of franchise and license revenue to match the
related occupancy revenue. Additionally, as leases or subleases with franchisees expire, franchise occupancy revenue
and costs could decrease if franchisees enter into direct leases with landlords. Occupancy revenue has decreased from
$41.9 million in 2020 to $38.6 million in 2022 primarily as a result of lease expirations. At the end of 2022, we had 214
franchised restaurants that were leased or subleased from Denny’s, compared to 265 at the end of 2020.
Total revenues at Keke’s for the year ended December 28, 2022 represented less than 2% of total consolidated revenues,
therefore, the Keke’s operating segment is included in Other for segment reporting purposes. Information discussed in
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the Denny’s
brand unless otherwise noted.
23
29,816
51,684
11,241
21,828
114,569
94,348
55,040
16,161
1,808
25.2 %
43.7 %
9.5 %
18.5 %
97.0 %
55.4 %
19.1 %
5.6 %
0.6 %
281,926
97.7 %
6,679
17,965
(4,171)
(7,115)
(1,999)
2.3 %
6.2 %
(1.4) %
(2.5) %
(0.7) %
(1.8) %
Statements of Operations
Revenue:
Company restaurant sales
Franchise and license revenue
Total operating revenue
Costs of company restaurant sales, excluding
depreciation and amortization (a):
Product costs
Payroll and benefits
Occupancy
Other operating expenses
Total costs of company restaurant sales, excluding
depreciation and amortization
Costs of franchise and license revenue (a)
General and administrative expenses
Depreciation and amortization
Fiscal Year Ended
December 28, 2022
December 29, 2021
December 30, 2020
(Dollars in thousands)
$ 199,753
43.8 % $ 175,017
44.0 % $ 118,160
256,676
56.2 %
223,157
56.0 %
170,445
40.9 %
59.1 %
456,429
100.0 %
398,174
100.0 %
288,605
100.0 %
53,617
76,412
15,154
34,275
179,458
135,327
67,173
14,862
26.8 %
38.3 %
7.6 %
17.2 %
89.8 %
52.7 %
14.7 %
3.3 %
42,982
65,337
11,662
26,951
146,932
109,140
68,686
15,446
24.6 %
37.3 %
6.7 %
15.4 %
84.0 %
48.9 %
17.3 %
3.9 %
Operating (gains), losses and other charges, net
(1,005)
(0.2) %
(46,105)
(11.6) %
Total operating costs and expenses, net
Operating income
Interest expense, net
Other nonoperating income, net
Net income (loss) before income taxes
Provision for (benefit from) income taxes
395,815
60,614
13,769
86.7 %
13.3 %
3.0 %
294,099
104,075
15,148
73.9 %
26.1 %
3.8 %
(52,585)
(11.5) %
(15,176)
(3.8) %
99,430
24,718
21.8 %
5.4 %
104,103
26.1 %
26,030
6.5 %
Net income (loss)
$
74,712
16.4 % $
78,073
19.6 % $
(5,116)
(a) Costs of company restaurant sales percentages are as a percentage of company restaurant sales. Costs of franchise and license revenue
percentages are as a percentage of franchise and license revenue. All other percentages are as a percentage of total operating revenue.
24
Statistical Data
Denny’s
Company average unit sales
Franchise average unit sales
Company equivalent units (a)
Franchise equivalent units (a)
Company same-store sales increase (decrease) vs. prior
year (b)(c)
Domestic franchised same-store sales increase (decrease)
vs. prior year (b)(c)
Keke’s (d)(e)
Company average unit sales
Franchise average unit sales
Company equivalent units (a)
Franchise equivalent units (a)
Fiscal Year Ended
December 28, 2022
December 29, 2021
December 30, 2020
(Dollars in thousands)
$2,985
$1,729
65
1,561
10.4%
6.0%
$772
$802
4
20
$2,709
$1,597
65
1,581
55.3%
40.1%
$—
$—
—
—
$1,812
$1,181
65
1,614
(36.7)%
(30.9)%
$—
$—
—
—
(a) Equivalent units are calculated as the weighted average number of units outstanding during a defined time period.
(b) Same-store sales include sales from company restaurants or non-consolidated franchised and licensed restaurants that were open
the same period in the prior year. While we do not record franchise and licensed sales as revenue in our consolidated financial
statements, we believe domestic franchised same-store sales information is useful to investors in understanding our financial
performance, as our sales-based royalties are calculated based on a percentage of franchise sales. Accordingly, domestic
franchised same-store sales should be considered as a supplement to, not a substitute for, our results as reported under GAAP.
(c) Prior year amounts have not been restated for 2022 comparable restaurants.
(d) Statistical data reported for Keke’s has been calculated from the acquisition date forward and has not been annualized.
(e) Same-store sales data for Keke's is not reported due to the acquisition being completed during the year ended December 28, 2022.
Unit Activity
Denny’s
Company restaurants, beginning of period
Units acquired from franchisees
Units closed
End of period
Franchised and licensed restaurants, beginning of period
Units opened
Units acquired by Company
Units closed
End of period
Total restaurants, end of period
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
65
1
—
66
1,575
28
(1)
(66)
1,536
1,602
65
—
—
65
1,585
20
—
(30)
1,575
1,640
68
—
(3)
65
1,635
20
—
(70)
1,585
1,650
25
Keke’s
Company restaurants, beginning of period
Units acquired
End of period
Franchised and licensed restaurants, beginning of period
Units opened
Units acquired
End of period
Total restaurants, end of period
Company Restaurant Operations
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
—
8
8
—
2
44
46
54
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Company same-store sales increased 10.4% in 2022 and 55.3% in 2021 compared with the respective prior year. Company
restaurant sales for 2022 increased $24.7 million, or 14.1%, primarily driven by a 10.4% increase in company same-store sales
resulting from price increases to partially offset inflationary costs. The increase in sales includes $6.2 million from Keke’s.
Company restaurant sales for 2021 increased $56.9 million, or 48.1%, primarily resulting from the increase in company same-store
sales caused primarily by reduced dine-in restrictions and fewer temporary closures related to the COVID-19 pandemic.
Total costs of company restaurant sales as a percentage of company restaurant sales were 89.8% in 2022, 84.0% in 2021 and
97.0% in 2020 consisting of the following:
Product costs as a percentage of company restaurant sales were 26.8% in 2022, 24.6% in 2021 and 25.2% in 2020. For 2022,
the increase as a percentage of sales was primarily due to increased commodity costs. For 2021, the decrease as a percentage
of sales was primarily due to leverage gained from favorable product mix and increased pricing and lower paper costs, partly
offset by higher commodity costs.
Payroll and benefits as a percentage of company restaurant sales were 38.3% in 2022, 37.3% in 2021 and 43.7% in 2020. The
2022 increase as a percentage of sales was primarily due to a 0.9 percentage point increase in team labor due to higher wage
rates. In addition, a 0.4 percentage point increase in workers’ compensation costs was partially offset by a 0.4 percentage point
decrease in group insurance costs. The 2021 decrease as a percentage of sales was due to the leveraging effect of higher sales.
The 2021 decrease included a 3.9 percentage point decrease in management labor, 1.7 percentage point decrease in team labor,
and 0.5 percentage point decrease in workers’ compensation costs.
Occupancy costs as a percentage of company restaurant sales were 7.6% in 2022, 6.7% in 2021 and 9.5% in 2020. The 2022
increase as a percentage of sales was primarily due to general liability insurance cost increases in the current year in addition
to a prior year decrease, as well as higher rents. The 2021 decrease as a percentage of sales was due to the leveraging effect
of higher sales.
Other operating expenses consisted of the following amounts and percentages of company restaurant sales:
Utilities
Repairs and maintenance
Marketing
Legal settlements
Other direct costs
December 28, 2022
Fiscal Year Ended
December 29, 2021
(Dollars in thousands)
December 30, 2020
$
7,273
3,874
5,294
4,224
13,610
3.6 % $
1.9 %
2.7 %
2.1 %
6.8 %
5,814
2,743
4,594
2,134
11,666
3.3 % $
1.6 %
2.6 %
1.2 %
6.7 %
5,148
2,608
3,904
506
9,662
4.4 %
2.2 %
3.3 %
0.4 %
8.2 %
Other operating expenses
$ 34,275
17.2 % $ 26,951
15.4 % $ 21,828
18.5 %
26
For 2022, legal settlement costs were higher as a percentage of sales primarily due to unfavorable development in certain
claims. For 2021, other direct costs were lower as a percentage of sales due to the leveraging effect of higher sales, partially
offset by higher delivery fees and legal settlement costs.
Franchise Operations
Franchise and license revenue and costs of franchise and license revenue consisted of the following amounts and percentages
of franchise and license revenue for the periods indicated:
Royalties
Advertising revenue
Initial and other fees
Occupancy revenue
Fiscal Year Ended
December 28, 2022
December 29, 2021
December 30, 2020
(Dollars in thousands)
$ 113,891
44.4 % $ 103,425
46.4 % $ 67,501
75,926
28,262
38,597
29.6 %
11.0 %
15.0 %
69,957
8,009
41,766
31.3 %
3.6 %
18.7 %
53,745
7,332
41,867
39.6 %
31.5 %
4.3 %
24.6 %
Franchise and license revenue
$ 256,676
100.0 % $ 223,157
100.0 % $ 170,445
100.0 %
Advertising costs
Occupancy costs
Other direct costs
$ 75,926
29.6 % $ 69,957
31.3 % $ 53,745
24,090
35,311
9.4 %
13.8 %
26,237
12,946
11.8 %
5.8 %
26,732
13,871
Costs of franchise and license revenue
$ 135,327
52.7 % $ 109,140
48.9 % $ 94,348
31.5 %
15.7 %
8.1 %
55.4 %
Royalties increased by $10.5 million, or 10.1%, in 2022 primarily resulting from a 6.0% increase in domestic franchised
same-store sales as compared to the prior year. The increase in royalties included $2.2 million from Keke’s. Royalties increased
by $35.9 million, or 53.2%, in 2021 primarily resulting from a 40.1% increase in domestic franchised same-store sales as
compared to the prior year. Additionally, 2020 included royalty abatements of $6.0 million to help our franchisees weather
the impact of the COVID-19 pandemic. The average domestic contractual royalty rate, including the impact of abatements
in prior years, was 4.39%, 4.35% and 3.86% for 2022, 2021 and 2020, respectively.
Advertising revenue increased $6.0 million, or 8.5%, in 2022 primarily resulting from the increase in domestic franchise
same-store sales. Advertising revenue increased $16.2 million, or 30.2%, in 2021 resulting from the increase in domestic
franchised same-store sales. Additionally, 2020 included advertising fee abatements of $1.3 million.
Initial and other fees increased $20.3 million, or 252.9%, in 2022 primarily resulting from the recognition of $19.1 million
of revenue from the sale and installation of kitchen equipment at franchise restaurants. Initial and other fees increased
$0.7 million, or 9.2%, in 2021 primarily due to higher menu production revenue, partially offset by the impact of less
accelerated revenue recognition as a result of fewer franchised unit closures compared to 2020.
Occupancy revenue decreased $3.2 million, or 7.6%, in 2022 primarily due to lease terminations. Occupancy revenue
decreased $0.1 million, or 0.2%, in 2021 primarily due to lease terminations, partially offset by higher percentage rents
as a result of sales increases.
Costs of franchise and license revenue increased $26.2 million, or 24.0%, in 2022. Advertising costs increased $6.0 million,
or 8.5%, which corresponds to the related advertising revenue increases noted above. Occupancy costs decreased $2.1 million,
or 8.2%, in 2022, primarily related to lease terminations. Other direct costs increased $22.4 million, or 172.8%, primarily due
to $19.1 million of expense as part of the installation of kitchen equipment at franchise restaurants as mentioned above. As a
result, costs of franchise and license revenue as a percentage of franchise and license revenue increased to 52.7% for 2022
from 48.9% in 2021.
Costs of franchise and license revenue increased $14.8 million, or 15.7%, in 2021. The increase was primarily related to
increased advertising costs, which corresponds to the related advertising revenue increases noted above. Occupancy costs
decreased $0.5 million, or 1.9%, in 2021, primarily related to lease terminations. Other direct costs decreased $0.9 million,
or 6.7%, primarily due to reductions in bad debt allowance expense, partially offset by increases in menu production expense.
27
As a result, costs of franchise and license revenue as a percentage of franchise and license revenue decreased to 48.9%
for 2021 from 55.4% in 2020.
Other Operating Costs and Expenses
Other operating costs and expenses such as general and administrative expenses and depreciation and amortization expense
relate to both company and franchise operations.
General and administrative expenses consisted of the following:
Corporate administrative expenses
Share-based compensation
Incentive compensation
Deferred compensation valuation adjustments
Total general and administrative expenses
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
$
$
(In thousands)
52,115 $
44,367 $
11,400
5,811
(2,153)
13,602
8,628
2,089
67,173 $
68,686 $
41,135
7,948
4,351
1,606
55,040
Total general and administrative expenses decreased by $1.5 million, or 2.2%, in 2022 and increased by $13.6 million,
or 24.8%, in 2021.
Corporate administrative expenses increased by $7.7 million in 2022 and increased by $3.2 million in 2021. The 2022
increase was primarily due to compensation increases in the current year and prior year temporary cost reductions related
to the COVID-19 pandemic, including net reductions in tax credits related to the CARES Act of approximately $0.5 million.
The 2021 increase was primarily due to prior year temporary cost reductions related to the COVID-19 pandemic, including
net reductions in tax credits related to the CARES Act of approximately $1.2 million.
Share-based compensation decreased by $2.2 million in 2022 and increased by $5.7 million in 2021. These changes were
primarily the result of plan modifications made in 2020 and related valuations. In addition, the 2020 long-term incentive plan
had a two-year vesting period compared to a typical three-year vesting term like our other long-term incentive plans. The 2020
long-term incentive plan became fully vested in May 2022. Incentive compensation decreased by $2.8 million in 2022 and
increased by $4.3 million in 2021. The changes in incentive compensation for both periods primarily resulted from our
performance against plan metrics. Changes in deferred compensation valuation adjustments have offsetting gains or losses
on the underlying nonqualified deferred plan investments included as a component of other nonoperating income, net.
Depreciation and amortization consisted of the following:
Depreciation of property and equipment
Amortization of finance right-of-use assets
Amortization of intangible and other assets
Total depreciation and amortization expense
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands)
$
$
11,118 $
1,704
2,040
14,862 $
11,441 $
1,895
2,110
15,446 $
11,284
1,870
3,007
16,161
The 2022 decrease in total depreciation and amortization expense was primarily due to certain assets becoming fully
depreciated and fewer asset retirements. The 2021 decrease in total depreciation and amortization expense was the result
of certain intangible assets becoming fully amortized in 2020.
28
Operating (gains), losses and other charges, net consisted of the following:
Gains on sales of assets and other, net
Restructuring charges and exit costs
Impairment charges
Operating (gains), losses and other charges, net
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
$
$
(In thousands)
(3,378) $
(47,822) $
1,410
963
1,275
442
(1,005) $
(46,105) $
(4,678)
2,403
4,083
1,808
Gains on sales of assets and other, net of $3.4 million for 2022 primarily related to the sale of two parcels of real estate. Gains
on sales of assets and other, net of $47.8 million for 2021 primarily related to the sale of three parcels of real estate. Gains on
sales of assets and other, net of $4.7 million for 2020 primarily related to the sales of real estate.
Restructuring charges and exit costs consisted of the following:
Exit costs
Severance and other restructuring charges
Total restructuring and exit costs
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands)
$
$
86 $
1,324
1,410 $
323 $
952
1,275 $
204
2,199
2,403
Total restructuring and exit costs for 2022 primarily consisted of severance costs. Total restructuring and exit costs for 2021
were primarily made up of relocation costs associated with moving certain employees to our support center in Irving, Texas.
Total restructuring and exit costs for 2020 primarily relate to the Company permanently separating with approximately 50
support center staff.
Impairment charges of $1.0 million, $0.4 million and $4.1 million for 2022, 2021 and 2020, respectively, primarily resulted
from our assessment of underperforming restaurants.
Operating income was $60.6 million in 2022, $104.1 million in 2021 and $6.7 million in 2020.
Interest expense, net consisted of the following:
Interest on credit facilities
Interest on interest rate swaps
Interest on finance lease liabilities
Letters of credit and other fees
Interest income
Total cash interest
Amortization of deferred financing costs
Amortization of interest rate swap losses
Interest accretion on other liabilities
Total interest expense, net
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
(In thousands)
$
$
8,478 $
1,310
2,350
1,053
(87)
13,104
634
29
2
13,769 $
5,478 $
4,023
2,960
1,438
(25)
13,874
1,105
167
2
15,148 $
8,658
3,160
3,129
1,259
(96)
16,110
875
783
197
17,965
Interest expense, net decreased during 2022 primarily due to decreased deferred financing cost amortization and decreased
financing lease interest. Interest expense, net decreased during 2021 primarily due to decreased average borrowings and lower
average interest rates.
29
Other nonoperating income, net was $52.6 million, $15.2 million, and $4.2 million for 2022, 2021 and 2020, respectively.
Nonoperating income for 2022 includes $55.0 million of gains related to dedesignated interest rate swap valuation adjustments,
partially offset by losses of $2.2 million on deferred compensation plan investments. Nonoperating income for 2021 includes
$12.8 million of gains related to dedesignated interest rate swap valuation adjustments and $2.2 million in gains on deferred
compensation investments. The income for 2020 includes losses on interest rate swaps of $7.4 million resulting from the
discontinuance of hedge accounting treatment on a portion of our interest rate swaps and income of $10.3 million related to
interest rate swap valuation adjustments on dedesignated interest rate swaps subsequent to the discontinuation of hedge
accounting and $1.8 million in gains on deferred compensation plan investments. For additional details related to the interest
rate swaps, see Note 10 to our Consolidated Financial Statements.
The provision for (benefit from) income taxes was an expense of $24.7 million for 2022, expense of $26.0 million for
2021 and a benefit of $2.0 million for 2020. The effective tax rate was 24.9% for 2022, 25.0% for 2021 and 28.1% for 2020.
For 2022, the difference in the overall effective rate from the U.S. statutory rate was primarily due to state and foreign taxes,
partially offset by the generation of employment and foreign tax credits.
For 2021, the difference in the overall effective rate from the U.S. statutory rate was primarily due to state and foreign taxes,
partially offset by the generation of employment credits. The 2021 rate was also impacted by an expense of $1.3 million from
disallowed compensation deductions.
For 2020, the difference in the overall effective rate from the U.S. statutory rate was primarily due to state and foreign taxes,
partially offset by the generation of employment credits. The 2020 rate was also impacted by a $0.9 million benefit from the
statutory rate differential due to a net operating loss carryback to a prior year and an expense of $1.0 million from disallowed
compensation deductions.
For additional details related to the provision for (benefit from) income taxes as well as changes in the effective tax rate,
see Note 15 to our Consolidated Financial Statements.
Net income (loss) was income of $74.7 million for 2022, income of $78.1 million for 2021 and a loss of $5.1 million for 2020.
Liquidity and Capital Resources
Summary of Cash Flows
Our primary sources of liquidity and capital resources are cash generated from operations and borrowings under our credit
facility (as described below). Principal uses of cash are operating expenses, acquisitions and capital expenditures and the
repurchase of shares of our common stock.
The following table presents a summary of our sources and uses of cash and cash equivalents for the periods indicated:
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
December 28, 2022
December 29, 2021
December 30, 2020
Fiscal Year Ended
$
$
(In thousands)
39,452 $
76,173 $
(86,596)
20,043
29,014
(78,455)
(27,101) $
26,732 $
(3,137)
4,651
(994)
520
Net cash flows provided by operating activities were $39.5 million for the year ended December 28, 2022 compared to net
cash flows provided by operating activities of $76.2 million for the year ended December 29, 2021. The decrease in cash flows
provided by (used in) operating activities was primarily due to increased operating costs at company restaurants and the timing
of prior year accrual payments and receivable collections. Net cash flows provided by operating activities were $76.2 million
for the year ended December 29, 2021 compared to net cash flows used in operating activities of $3.1 million for the year
ended December 30, 2020. The increase in cash flows provided by (used in) operating activities in 2021 compared to 2020 was
primarily due to the improvement of operating results in 2021 and the timing of prior year accrual payments. We believe that
our estimated cash flows from operations for 2023, combined with our capacity for additional borrowings under our credit
facility, will enable us to meet our anticipated cash requirements and fund capital expenditures over the next twelve months.
30
Net cash flows used in investing activities were $86.6 million for the year ended December 28, 2022. These cash flows included
$82.5 million for the acquisition of Keke’s and capital expenditures of $11.8 million, partially offset by proceeds from the sale
of real estate and other assets of $4.1 million and collections on real estate acquisitions of $3.6 million. Net cash flows provided
by investing activities were $29.0 million for the year ended December 29, 2021. These cash flows were primarily proceeds
from the sale of real estate and other assets of $50.1 million, partially offset by acquisition of restaurants and real estate of
$10.4 million, capital expenditures of $7.4 million and deposits on real estate acquisitions of $3.6 million. Net cash flows
provided by investing activities were $4.7 million for the year ended December 30, 2020. These cash flows were primarily
proceeds from the sale of real estate of $9.4 million and proceeds from the sale of investments of $2.9 million, partially offset
by capital expenditures of $7.0 million and investment purchases of $1.4 million.
Our principal capital requirements have been largely associated with the following:
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
Facilities
New construction
Remodeling
Information technology
Other
$
4,596 $
3,206 $
(In thousands)
91
3,846
2,638
673
—
1,477
1,410
1,262
Capital expenditures (excluding acquisitions)
$
11,844 $
7,355 $
4,107
23
992
1,386
454
6,962
Cash flows provided by financing activities were $20.0 million for the year ended December 28, 2022, which included net debt
borrowings of $89.5 million and net bank overdrafts of $0.3 million, partially offset by cash payments for stock repurchases of
$65.0 million and payments of tax withholding on share-based compensation of $4.8 million. Cash flows used in financing
activities were $78.5 million for the year ended December 29, 2021, which included net debt repayments of $42.1 million, cash
payments for stock repurchases of $30.0 million, net bank overdraft payments of $3.1 million, and deferred financing costs of
$1.9 million. Cash flows used in financing activities were $1.0 million for the year ended December 30, 2020, which included
net debt repayments of $31.6 million, cash payments for stock repurchases of $36.0 million offset by proceeds of $69.6 million
from the issuance of common stock.
Our working capital deficit was $43.3 million at December 28, 2022 compared with $28.3 million at December 29, 2021 as
increased cash from the sales of real estate in the prior year was used for business operations. We are able to operate with a
substantial working capital deficit because (1) restaurant operations and most food service operations are conducted primarily
on a cash and cash equivalent basis with a low level of accounts receivable, (2) rapid turnover allows a limited investment in
inventories and (3) accounts payable for food, beverages and supplies usually become due after the receipt of cash from the
related sales.
Credit Facility
The Company and certain of its subsidiaries have a credit facility consisting of a five-year $400 million senior secured
revolver (with a $25 million letter of credit sublimit). The credit facility includes an accordion feature that would allow us
to increase the size of the revolver to $450 million. Borrowings bear a tiered interest rate, which is based on the Company's
consolidated leverage ratio. The credit facility contains provisions specifying alternative interest rate calculations to be used
at such time LIBOR ceases to be available as a benchmark due to reference rate reform. The maturity date for the credit facility
is August 26, 2026.
The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit
facility is guaranteed by the Company and its material subsidiaries and is secured by assets of the Company and its subsidiaries,
including the stock of its subsidiaries (other than its insurance captive subsidiary). It includes negative covenants that are usual
for facilities and transactions of this type. The credit facility also includes certain financial covenants with respect to a maximum
consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. We were in compliance with all financial
covenants as of December 28, 2022.
As of December 28, 2022, we had outstanding revolver loans of $261.5 million and outstanding letters of credit under the credit
facility of $12.3 million. These balances resulted in unused commitments of $126.2 million as of December 28, 2022 under the
credit facility.
31
As of December 28, 2022, borrowings under the credit facility bore interest at a rate of LIBOR plus 2.25% and the commitment
fee, paid on the unused portion of the credit facility, was set to 0.35%.
Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding
revolver loans was 6.37% and 2.09% as of December 28, 2022 and December 29, 2021, respectively. Taking into consideration
our interest rate swaps that are designated as cash flow hedges, the weighted-average interest rate of outstanding revolver loans
was 5.31% and 4.44% as of December 28, 2022 and December 29, 2021, respectively.
Interest Rate Hedges
We have interest rate swaps to hedge a portion of the forecasted cash flows of our floating rate debt. See Part II Item 7A.
Quantitative and Qualitative Disclosures About Market Risk for details on our interest rate swaps.
Kitchen Modernization and Technology Transformation Initiatives
During 2022, the Company substantially completed the process of upgrading and improving kitchen equipment throughout the
domestic system. This investment is expected to yield long-term benefits through menu enhancements across all dayparts, but
especially the dinner daypart, with new and improved food offerings. The new equipment is also expected to provide immediate
benefits through increased kitchen efficiency and productivity while also reducing food waste.
The Company intends to initiate the rollout of a new cloud-based restaurant technology platform throughout the domestic
system which will lay the foundation for future technology initiatives to further enhance the guest experience. The rollout
is expected to begin in 2023 and continue into 2024.
The Company has committed to investing approximately $10 million in total toward the cost and installation of the kitchen
equipment package (approximately $5.7 million contributed to date) and the new cloud-based restaurant technology
platform (approximately $4.3 million committed) in domestic franchise restaurants.
Contractual Obligations
Our future contractual obligations and commitments at December 28, 2022 consisted of the following:
Long-term debt (a)
Finance lease obligations (b)(c)
Operating lease obligations (b)
Interest obligations (c)
Defined benefit plan obligations (d)
Purchase obligations (e)
Unrecognized tax benefits (f)
Total
Payments Due by Period
Total
Less than 1
Year
1-2 Years
3-4 Years
(In thousands)
5 Years and
Thereafter
$
261,500 $
— $
— $
261,500 $
26,013
182,569
50,888
1,761
216,740
869
740,340 $
3,768
23,031
13,879
972
216,740
—
258,390 $
5,958
41,805
27,757
265
—
—
75,785 $
4,773
36,952
9,252
210
—
—
312,687 $
$
—
11,514
80,781
—
314
—
—
92,609
(a) Refer to Note 10 to our Consolidated Financial Statements for a further discussion of our long-term debt
and timing of expected payments.
(b) Refer to Note 9 to our Consolidated Financial Statements for a further discussion of our lease obligations
(c)
and timing of expected payments.
Interest obligations represent payments related to our long-term debt outstanding at December 28, 2022. For long-term
debt with variable rates, we have used the rate applicable at December 28, 2022 to project interest over the periods
presented in the table above, taking into consideration the impact of the interest rate swaps that are designated as cash
flow hedges for the applicable periods. The finance lease obligation amounts above are inclusive of interest.
(d) Refer to Note 12 to our Consolidated Financial Statements for a further discussion of our defined benefit plan
obligations and timing of expected payments.
32
(e) Refer to Note 19 to our Consolidated Financial Statements for a further discussion of our purchase
obligations and timing of expected payments.
(f) Unrecognized tax benefits are related to uncertain tax positions. As we are not able to reasonably
estimate the timing or amount of these payments, the related balances have not been reflected in this table.
Critical Accounting Policies and Estimates
Our reported results are impacted by the application of certain accounting policies that require us to make subjective or
complex judgments. These judgments involve estimations of the effect of matters that are inherently uncertain and may
significantly impact our quarterly or annual results of operations or financial condition. Changes in the estimates and
judgments could significantly affect our results of operations and financial condition and cash flows in future years.
Our significant accounting policies are discussed in Note 2 to our Consolidated Financial Statements. We consider financial
reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent
information relative to the current economic and business environment. During the past five fiscal years, we have not made
any material changes to the accounting methodologies used to assess the areas discussed below, unless noted otherwise.
Descriptions of what we consider to be our most significant critical accounting policies are as follows:
Self-insurance liabilities. We are self-insured for a portion of our losses related to certain medical plans, workers’ compensation,
general, product and automobile insurance liability. In estimating these liabilities, we utilize independent actuarial estimates
of expected losses, which are based on statistical analysis of historical data, including certain actuarial assumptions regarding
the frequency and severity of claims and claim development history and settlement practices.
We have not made any material changes in the methodology used to establish our insurance liabilities during the past three
years and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions
used to calculate the insurance reserves. However, our estimates of expected losses are adjusted over time based on changes to
the actual costs of the underlying claims, which could result in additional expense or reversal of expense previously recorded.
Additionally, the change in the number of company restaurants impacts the balance of liabilities over time.
Total workers’ compensation, general, product and automobile insurance liabilities at December 28, 2022 and December 29, 2021
were $9.7 million and $11.5 million, respectively. The decrease in self-insurance liabilities has primarily been the result of
payments and liability reductions resulting from the reduction of the number of company restaurants over the past several years.
See Note 2 to our Consolidated Financial Statements for a further discussion of our policies regarding self-insurance liabilities.
Impairment of long-lived assets. We evaluate our long-lived assets for impairment at the restaurant level on a quarterly basis,
when assets are identified as held for sale or whenever changes or events indicate that the carrying value may not be recoverable.
For assets identified as held for sale, we use the market approach and consider proceeds from similar asset sales. We assess
impairment of restaurant-level assets based on the operating cash flows of the restaurant, expected proceeds from the sale
of assets and our plans for restaurant closings. For underperforming assets, we use the income approach to determine both
the recoverability and estimated fair value of the assets. To estimate future cash flows, we make certain assumptions about
expected future operating performance, such as revenue growth, operating margins, risk-adjusted discount rates, and future
economic and market conditions. If the long-lived assets of a restaurant are not recoverable based upon estimated future,
undiscounted cash flows, we write the assets down to their fair value.
We have not made any material changes in our methodology for assessing impairments during the past three years and we
do not believe that there is a reasonable likelihood that there will be a material change in the estimates or assumptions used by
us to assess impairment of long-lived assets. However, if actual results are not consistent with our estimates and assumptions
used in estimating future cash flows and fair values of long-lived assets, we may be exposed to losses that could be material.
Impairment charges of $1.0 million, $0.4 million and $4.1 million for the years ended December 28, 2022, December 29, 2021
and December 30, 2020, respectively, primarily resulted from our assessment of underperforming restaurants. Impairments
recorded for the year ended December 30, 2020 were the result of lower expected restaurant-level operating cash flows for
certain restaurants due to the impacts of the COVID-19 pandemic.
See Note 2 and Note 14 to our Consolidated Financial Statements for further discussion of our policies regarding impairment
of long-lived assets.
33
Acquisition of Keke’s. The acquisition of Keke's was accounted for using the acquisition method of accounting, or acquisition
accounting, in accordance with ASC Topic 805, Business Combinations. The acquisition method of accounting involved the
allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed. This allocation
process involves the use of estimates and assumptions made in connection with estimating the fair value of assets acquired
and liabilities assumed including assumptions for which there was limited observable market information: forecasted future
revenues and operating margins, including projected growth in restaurant unit counts and average unit volumes, royalty rate,
and discount rates. Inputs used are generally obtained from historical data supplemented by current and anticipated market
conditions and growth rates. If the actual results differ from the estimates and judgements used in these fair values, the amounts
recorded in the Consolidated Financial Statements could result in a possible impairment of the intangible assets and goodwill
or require acceleration of the amortization expense of finite-lived intangible assets. Acquisition accounting allows for up to one
year to obtain the information necessary to finalize the fair value of all assets acquired and liabilities assumed at July 20, 2022.
As of December 28, 2022, we have recorded a preliminary allocation of consideration to net tangible and intangible assets
acquired, which is subject to revision as we obtain additional information necessary to complete the fair value studies and
acquisition accounting.
See Note 3 to our Consolidated Financial Statements for a further discussion of our policies regarding the acquisition of Keke’s.
Recent Accounting Pronouncements
See the Accounting Standards to be Adopted section of Note 2 to our Consolidated Financial Statements for further details
of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We have exposure to interest rate risk related to certain instruments entered into for other than trading purposes. Specifically, as
of December 28, 2022, borrowings under our credit facility bore interest at variable rates based on LIBOR plus 2.25% per annum.
We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt. A summary
of our interest rate swaps as of December 28, 2022 is as follows:
Trade Date
Effective Date
Maturity Date
Notional
Amount
Fair Value
Fixed Rate
(In thousands)
Swaps designated as
cash flow hedges
March 20, 2015
March 29, 2018
March 31, 2025
October 1, 2015
March 29, 2018
March 31, 2026
Dedesignated swaps
February 15, 2018
March 31, 2020
December 31, 2033
Total
$
$
$
$
120,000
50,000
$
$
130,000 (1) $
300,000
$
4,904
2,392
12,751
20,047
2.44 %
2.46 %
3.19 %
(1) The notional amounts of the swaps entered into on February 15, 2018 increase periodically until they reach the maximum notional amount of
$425.0 million on September 28, 2029.
As of December 28, 2022, the total notional amount of our interest rate swaps was in excess of 100% of our floating rate debt.
Based on the portion of the swaps in excess of our floating rate debt as of December 28, 2022, a hypothetical change of 100
basis points in LIBOR would change our annual cash flow by approximately $0.4 million. Depending on market considerations,
fluctuations in the fair values of our interest rate swaps could be significant. With the exception of these changes in the fair
value of our interest rate swaps and in the levels of borrowings under our credit facility, there have been no material changes
in our quantitative and qualitative market risks since the prior reporting period. For additional information related to our interest
rate swaps, including changes in the fair value, refer to Notes 8, 10 and 18 to our Consolidated Financial Statements.
34
Commodity Price Risk
We purchase certain food products, such as beef, poultry, pork, eggs and coffee, and utilities such as gas and electricity, that are
affected by commodity pricing and are, therefore, subject to price volatility caused by weather, production problems, delivery
difficulties and other factors that are outside our control and which are generally unpredictable. Changes in commodity prices
affect us and our competitors, generally and often simultaneously. In general, we purchase food products and utilities based upon
market prices established with vendors. Although many of the items purchased are subject to changes in commodity prices, the
majority of our purchasing arrangements are structured to contain features that minimize price volatility by establishing fixed
pricing and/or price ceilings and floors. We use these types of purchase arrangements to control costs as an alternative to using
financial instruments to hedge commodity prices. In many cases, we believe we will be able to address commodity cost increases
which are significant and appear to be long-term in nature by adjusting our menu pricing or managing the menu. However,
competitive circumstances could limit such actions and, in those circumstances, increases in commodity prices could lower our
margins. Because of the often short-term nature of commodity pricing aberrations and our ability to change menu pricing or
manage the menu in response to commodity price increases, we believe that the impact of commodity price risk is not significant.
We have established a process to identify, control and manage market risks which may arise from changes in interest rates,
commodity prices and other relevant rates and prices. We do not use derivative instruments for trading purposes.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements which appears on page F-1 herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive and financial officers, including the Chief Executive Officer
(the “CEO”) and Chief Financial Officer (the “CFO”), evaluated the effectiveness of our design and operation of our disclosure
controls and procedures pursuant to and as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as
amended (the “Exchange Act”), as of the end of the period covered by this report.
Based on their assessment as of December 28, 2022, our CEO and CFO have concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
On July 20, 2022, we closed on the acquisition of substantially all of the assets of Keke’s. As permitted by SEC guidance for
newly acquired businesses, we have excluded Keke's operations from the scope of our Sarbanes-Oxley Section 404 report on
internal control over financial reporting for the year ended December 28, 2022. We are in the process of integrating Keke's
into our internal control structure.
Other than as discussed above, there were no changes in our internal control over financial reporting identified in connection
with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
35
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system is designed to provide reasonable assurance to our
management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of
financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation
of the effectiveness of our internal control over financial reporting as of December 28, 2022 based on the framework in Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of
December 28, 2022.
The scope of management's assessment of the effectiveness of the Company's internal control over financial reporting included
all of the Company's consolidated operations except for the operations of its wholly-owned subsidiary, Keke’s, Inc., which
comprises certain assets and assumed liabilities of the franchise business and eight owned company-operated restaurants
acquired from K2 Restaurants, Inc. together with the other sellers and principal parties in July 2022. Keke’s, Inc.’s operations
represented $92.4 million of the Company's consolidated total assets and $8.7 million of the Company's consolidated total
revenues as of and for the year ended December 28, 2022.
The effectiveness of our internal control over financial reporting as of December 28, 2022 has also been audited by KPMG
LLP, an independent registered public accounting firm, as stated in their report that appears herein.
36
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Denny’s Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Denny's Corporation and subsidiaries' (the Company) internal control over financial reporting as of
December 28, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 28, 2022, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 28, 2022 and December 29, 2021, the related
consolidated statements of operations, comprehensive income (loss), shareholders’ deficit, and cash flows for each of the years
in the three-year period ended December 28, 2022, and the related notes (collectively, the consolidated financial statements),
and our report dated February 27, 2023 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired certain assets and assumed liabilities from K2 Restaurants, Inc. together with the other sellers and
principal parties (collectively, Keke's) during 2022, and management excluded from its assessment of the effectiveness of the
Company’s internal control over financial reporting as of December 28, 2022, Keke's’s internal control over financial reporting
associated with total assets of $92.4 million and total revenues of $8.7 million included in the consolidated financial statements
of the Company as of and for the year ended December 28, 2022. Our audit of internal control over financial reporting of the
Company also excluded an evaluation of the internal control over financial reporting of Keke's.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
37
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Greenville, South Carolina
February 27, 2023
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item with respect to our executive officers and directors; compliance by our directors, executive
officers and certain beneficial owners of our common stock with Section 16(a) of the Exchange Act; the committees of our
Board of Directors; our Audit Committee Financial Expert; and our Code of Ethics is furnished by incorporation by reference
to information under the captions entitled “General-Equity Security Ownership,” “Election of Directors,” “Executive Compensation,”
“Related Party Transactions” and “Code of Ethics” in the proxy statement (to be filed hereafter) in connection with Denny’s
Corporation’s 2023 Annual Meeting of Stockholders (the “proxy statement”) and possibly elsewhere in the proxy statement
(or will be filed by amendment to this report). Additional information required by this item related to our executive officers
appears in Item 1 of Part I of this report under the caption “Information about our Executive Officers.”
Item 11. Executive Compensation
The information required by this item is furnished by incorporation by reference to information under the captions entitled
“Executive Compensation” and “Election of Directors” in the proxy statement and possibly elsewhere in the proxy statement
(or will be filed by amendment to this report).
38
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The security ownership of certain beneficial owners information required by this item is furnished by incorporation by reference
to information under the caption “Equity Security Ownership” in the proxy statement and possibly elsewhere in the proxy
statement (or will be filed by amendment to this report).
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information as of December 28, 2022 with respect to our compensation plans under which
equity securities of Denny’s Corporation are authorized for issuance.
Plan category
Equity compensation plans approved
by security holders
Equity compensation plans not approved
by security holders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
4,374,772
(1)
$
—
4,374,772
$
—
—
—
2,985,996
(2)
704,166
(3)
3,690,162
(cid:11)(cid:20)(cid:12) Includes shares issuable in connection with our outstanding performance share awards and restricted stock units awards.
(cid:11)(cid:21)(cid:12) Includes shares of our common stock available for issuance as awards of stock options, restricted stock, restricted stock
units, deferred stock units and performance share units under the Denny’s Corporation 2021 Omnibus Incentive Plan.
(cid:11)(cid:22)(cid:12) Includes shares of our common stock available for issuance as awards of stock options and restricted stock units outside
of the Denny’s Incentive Plans in accordance with Nasdaq Listing Rule 5635(c)(4).
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is furnished by incorporation by reference to information under the captions “Related
Party Transactions” and “Election of Directors” in the proxy statement and possibly elsewhere in the proxy statement (or will
be filed by amendment to this report).
Item 14. Principal Accounting Fees and Services
The information required by this item is furnished by incorporation by reference to information under the caption entitled
“Selection of Independent Registered Public Accounting Firm” in the proxy statement and possibly elsewhere in the proxy
statement (or will be filed by amendment to this report).
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements: See the Index to Consolidated Financial Statements which appears on page F-1 hereof.
(a)(2) Financial Statement Schedules: No schedules are filed herewith because of the absence of conditions under which
they are required or because the information called for is in our Consolidated Financial Statements or notes thereto appearing
elsewhere herein.
(a)(3) Exhibits: Certain of the exhibits to this Report, indicated by an asterisk, are hereby incorporated by reference from
other documents on file with the Commission with which they are electronically filed, under File No. 001-18051, to be a part
hereof as of their respective dates.
39
Exhibit No. Description
*2.1
*2.2
*3.1
*3.2
*4.1
+*10.1
+*10.2
+*10.3
*10.4
*10.5
+*10.6
+*10.7
+*10.8
Asset Purchase Agreement, dated as of May 3, 2022, by and between the Denny's Corporation, as purchaser,
and the sellers and principals party thereto (incorporated by reference to Exhibit 2.1 to the Current Report on
Form 8-K of Denny's Corporation filed with the Securities and Exchange Commission on May 3, 2022).
First Amendment to Asset Purchase Agreement, dated as of July 11, 2022, by and between the Denny's
Corporation, as purchaser, and the sellers and principals party thereto (incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K of Denny's Corporation filed with the Securities and Exchange Commission
on July 14, 2022).
Restated Certificate of Incorporation of Denny's Corporation dated March 3, 2003, as amended by Certificate of
Amendment to Restated Certificate of Incorporation to Increase Authorized Capitalization dated August 25,
2004 (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K of Denny's Corporation for
the year ended December 29, 2004).
Amended and Restated By-laws of Denny’s Corporation, amended and restated as of November 7, 2018
(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of Denny’s Corporation filed with
the Commission on November 13, 2018).
Description of Common Stock of Denny’s Corporation (incorporated by reference to Exhibit 4.1 to the Annual
Report on Form 10-K of Denny’s Corporation for the year ended December 25, 2019).
Employment Offer Letter dated August 16, 2005 between Denny's Corporation and F. Mark Wolfinger
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Denny's Corporation for
the quarter ended September 28, 2005).
Employment Offer Letter dated January 6, 2011 between Denny's Corporation and John C. Miller (incorporated
by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Denny's Corporation for the quarter
ended March 30, 2011).
Employment Letter Agreement, dated as of April 28, 2022, by and between Denny's Corporation and Kelli
Valade (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Denny's Corporation
filed with the Securities and Exchange Commission on May 3, 2022).
Fourth Amended and Restated Credit Agreement dated as of August 26, 2021 among Denny's, Inc., as the
Borrower, Denny's Corporation, as Parent, and Certain Subsidiaries of Parent, as Guarantors, Wells Fargo
Bank, National Association, as Administrative Agent and L/C Issuer, Truist Bank, Bank of the West, and
Regions Bank, as Co-Syndication Agents, Cadence Bank N.A. and Fifth Third Bank, National Association as
Co-Documentation Agents, and The Other Lenders Party Hereto, Wells Fargo Securities, LLC, Truist
Securities, Inc., Bank of the West, and Regions Capital Markets, A Division of Regions Bank, as Joint Lead
Arrangers and Joint Bookrunners (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
of Denny's Corporation filed with the Commission on August 26, 2021).
Fourth Amended and Restated Guarantee and Collateral Agreement dated as of August 26, 2021 among
Denny's Inc., Denny's Realty, LLC, Denny's Corporation, DFO, LLC, the other Subsidiaries of Parent from
time to time party hereto, and Wells Fargo Bank, National Association, as Administrative Agent (incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K of Denny's Corporation filed with the
Commission on August 26, 2021).
Denny's Corporation Amended and Restated Executive and Key Employee Severance Pay Plan (incorporated
by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Denny's Corporation for the quarter
ended September 26, 2018).
Denny's Inc. Deferred Compensation Plan, as amended and restated effective March 1, 2017 (incorporated by
reference to Exhibit 99.1 to the Registration Statement on Form S-8 of Denny's Corporation (Commission File
No. 333-216655) filed with the Commission on March 13, 2017).
Denny’s Corporation 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 99.1 to the
Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May
19, 2021).
40
+10.9
2021 Long-Term Incentive Program Performance Share Unit Award Certificate.
+10.10
2021 Long-Term Incentive Program Restricted Stock Unit Award Certificate.
+*10.11
+*10.12
2022 Long-Term Incentive Program Performance Share Unit Award Certificate (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Denny’s Corporation for the quarter ended March 30,
2022).
2022 Long-Term Incentive Program Restricted Stock Unit Award Certificate (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q of Denny’s Corporation for the quarter ended March 30,
2022).
+*10.13
Summary of Non-Employee Director Compensation as of May 19, 2021 (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q of Denny's Corporation for the quarter ended June 30, 2021).
21.1
23.1
31.1
31.2
32.1
Subsidiaries of Denny’s Corporation.
Consent of KPMG LLP.
Certification of Kelli F. Valade, Chief Executive Officer of Denny’s Corporation, pursuant to Rule 13a-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Robert P. Verostek, Executive Vice President and Chief Financial Officer of Denny’s
Corporation, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Statement of Kelli F. Valade, Chief Executive Officer of Denny’s Corporation, and Robert P. Verostek,
Executive Vice President and Chief Financial Officer of Denny’s Corporation, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
+
*
Denotes management contracts or compensatory plans or arrangements.
Incorporated by reference.
Item 16. Form 10-K Summary
None.
41
DENNY’S CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (KPMG LLP, Greenville, SC Auditor Firm ID: 185)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F - 1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Denny’s Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Denny's Corporation and subsidiaries (the Company) as of
December 28, 2022 and December 29, 2021, the related consolidated statements of operations, comprehensive income (loss),
shareholders’ deficit, and cash flows for each of the years in the three-year period ended December 28, 2022, and the related
notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 28, 2022 and December 29, 2021, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 28, 2022, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 28, 2022, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 27, 2023 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of assumptions underlying self-insurance liabilities
As discussed in Note 2 to the consolidated financial statements, the Company’s self-insurance liabilities related to workers’
compensation, general, product and automobile insurance as of December 28, 2022 were $9.7 million. The liabilities
represent estimated incurred losses. These estimates include assumptions regarding frequency and severity of claims as well
as changes in the Company’s business environment, medical costs and the regulatory environment that could impact the
overall self-insurance costs.
We identified the evaluation of assumptions underlying self-insurance liabilities as a critical audit matter. Specifically, inherent
uncertainty in the frequency and severity of claims assumptions that are used to actuarially estimate the self-insurance liabilities
involved especially subjective auditor judgment. It also required professionals with specialized skills and knowledge to evaluate
these key assumptions and the impact of these assumptions on the self-insurance liabilities.
F - 2
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls over the Company’s self-insurance process, including controls related to
the underlying claims data used to develop the frequency and severity of historical claims. We evaluated the Company’s ability
to accurately estimate claims expense by comparing the prior estimated claim payments to actual claim payments. We also
assessed the Company’s estimate of the self-insurance liabilities by evaluating facts and circumstances related to incurred
claims received after year-end but before the consolidated financial statements were issued, to identify the presence of trends
not considered by the Company when it developed its assumptions. We involved actuarial professionals with specialized skills
and knowledge, who assisted with:
•
•
performing an independent assessment of the frequency and severity of the claims used by the Company to estimate
the self-insurance liabilities
developing an independent acceptable range for the self-insurance liabilities using the Company’s underlying historical
claims data, which involved assessing the frequency and severity of the Company’s claims assumptions.
Evaluation of the fair value of certain acquired intangible assets
As discussed in Notes 2 and 3 to the consolidated financial statements, the Company completed the acquisition of Keke’s
Breakfast Café (Keke’s) during fiscal year 2022 for total cash consideration of $82.5 million. The acquisition was accounted
for as a business combination using the acquisition method of accounting which requires assets acquired and liabilities assumed
to be recorded at fair value. As a result of the transaction, the Company acquired certain intangible assets, including the Keke’s
trade name (the trade name) and the Keke’s franchise agreements. The estimated fair values of the trade name and franchise
agreement intangible assets were determined using cash flows expected to be derived from the use of the assets. The
acquisition-date fair values for the trade name and franchise agreements were $35.6 million and $10.7 million, respectively.
We identified the evaluation of the acquisition-date fair values of the trade name and the franchise agreements as a critical
audit matter. Subjective and complex auditor judgment was required to evaluate the acquisition-date fair values of the trade
name and franchise agreements. It also required professionals with specialized skills and knowledge to evaluate the key
assumptions and the impact of these assumptions on the determination of the fair values of the trade name and franchise
agreements. Specifically, the fair value estimates used the following key assumptions for which there was limited observable
market information: forecasted future revenues and operating margins, including projected growth in restaurant unit counts
and average unit volumes, royalty rate, and discount rates. Changes in these assumptions could have had a significant effect
on the acquisition-date fair values of the trade name and franchise agreements.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls over the Company’s acquisition process, including controls
over the key assumptions. We performed sensitivity analyses over the projected revenues and operating margins to assess
the impact of changes in those assumptions on the Company’s determinations of fair value. We involved valuation
professionals with specialized skills and knowledge who assisted in:
•
•
•
evaluating the projected revenues and operating margins by comparing them to peer companies
used in the acquisition-date fair values of the trade name and franchise agreements
comparing the royalty rate to royalty rates in comparable franchise agreements
evaluating the discount rates used in the valuations by comparing them to discount rate ranges
that were independently developed using publicly available market data for peer entities.
/s/ KPMG LLP
We have served as the Company’s auditor since 2003.
Greenville, South Carolina
February 27, 2023
F - 3
Denny’s Corporation and Subsidiaries
Consolidated Balance Sheets
December 28, 2022
December 29, 2021
(In thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents
Investments
Receivables, net
Inventories
Assets held for sale
Prepaid and other current assets
Total current assets
Property, net of accumulated depreciation of $153,334 and $151,836, respectively
Financing lease right-of-use assets, net of accumulated amortization of $9,847 and $11,210,
respectively
Operating lease right-of-use assets, net
Goodwill
Intangible assets, net
Deferred financing costs, net
Deferred income taxes, net
Other noncurrent assets
Total assets
Liabilities
Current liabilities:
Current finance lease liabilities
Current operating lease liabilities
Accounts payable
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt
Noncurrent finance lease liabilities
Noncurrent operating lease liabilities
Liability for insurance claims, less current portion
Deferred income taxes, net
Other noncurrent liabilities
Total long-term liabilities
Total liabilities
Commitments and contingencies
Shareholders’ deficit
Common stock $0.01 par value; shares authorized - 135,000; December 28, 2022: 64,998
shares issued and 56,728 shares outstanding; December 29, 2021: 64,200 shares issued
and 62,210 shares outstanding
Paid-in capital
Deficit
Accumulated other comprehensive loss, net
Treasury stock, at cost, 8,270 and 1,990 shares, respectively
Total shareholders’ deficit
Total liabilities and shareholders’ deficit
$
$
$
$
3,523 $
1,746
25,576
5,538
1,403
12,529
50,315
94,469
6,499
126,065
72,740
95,034
2,337
—
50,876
498,335 $
1,683 $
15,310
19,896
56,762
93,651
261,500
9,555
123,404
7,324
7,419
32,598
441,800
535,451
650
142,136
(41,729)
(42,697)
(95,476)
(37,116)
498,335 $
30,624
2,551
19,621
5,060
—
11,393
69,249
91,176
7,709
128,727
36,884
50,226
2,971
11,502
37,083
435,527
1,952
15,829
15,595
64,146
97,522
170,000
10,744
126,296
8,438
—
87,792
403,270
500,792
642
135,596
(116,441)
(54,470)
(30,592)
(65,265)
435,527
See accompanying notes to consolidated financial statements.
F - 4
Denny’s Corporation and Subsidiaries
Consolidated Statements of Operations
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands, except per share amounts)
Revenue:
Company restaurant sales
Franchise and license revenue
Total operating revenue
Costs of company restaurant sales, excluding depreciation and
amortization:
Product costs
Payroll and benefits
Occupancy
Other operating expenses
Total costs of company restaurant sales, excluding
depreciation and amortization
Costs of franchise and license revenue
General and administrative expenses
Depreciation and amortization
Operating (gains), losses and other charges, net
Total operating costs and expenses, net
Operating income
Interest expense, net
Other nonoperating income, net
Net income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per share - basic
Net income (loss) per share - diluted
$
199,753 $
175,017 $
256,676
456,429
223,157
398,174
53,617
76,412
15,154
34,275
179,458
135,327
67,173
14,862
(1,005)
395,815
60,614
13,769
(52,585)
99,430
24,718
42,982
65,337
11,662
26,951
146,932
109,140
68,686
15,446
(46,105)
294,099
104,075
15,148
(15,176)
104,103
26,030
$
$
$
74,712 $
78,073 $
1.23 $
1.23 $
1.20 $
1.19 $
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
60,771
60,879
65,171
65,573
See accompanying notes to consolidated financial statements.
118,160
170,445
288,605
29,816
51,684
11,241
21,828
114,569
94,348
55,040
16,161
1,808
281,926
6,679
17,965
(4,171)
(7,115)
(1,999)
(5,116)
(0.08)
(0.08)
60,812
60,812
F - 5
Denny’s Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
(In thousands)
Net income (loss)
$
74,712 $
78,073 $
(5,116)
Other comprehensive income (loss), net of tax:
Minimum pension liability adjustment, net of tax of $113, $35
and $(67), respectively
Changes in the fair value of cash flow derivatives, net of tax of
$3,214, $1,386 and $(12,345), respectively
Reclassification of cash flow derivatives to interest expense,
net of tax of $309, $1,179 and $874, respectively
Reclassification of loss related to dedesignation of derivatives
to other nonoperating income, net of tax of $0, $0 and
$1,892, respectively
Amortization of unrealized losses related to dedesignated
derivatives to interest expense, net of tax of $7, $42 and
$214, respectively
345
10,405
1,001
—
22
Other comprehensive income (loss)
Total comprehensive income (loss)
$
11,773
86,485 $
78
2,889
2,844
—
124
5,935
84,008 $
(197)
(34,565)
2,286
5,462
569
(26,445)
(31,561)
See accompanying notes to consolidated financial statements.
F - 6
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7
-
F
Denny’s Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash flows provided
by (used in) operating activities:
Depreciation and amortization
Operating (gains), losses and other charges, net
Gains and amortization on interest rate swap derivatives, net
Amortization of deferred financing costs
(Gains) losses on investments
(Gains) losses on early termination of debt and leases
Deferred income tax expense
Increase (decrease) of tax valuation allowance
Share-based compensation expense
Changes in assets and liabilities, excluding acquisitions and
dispositions:
Receivables
Inventories
Prepaids and other current assets
Other assets
Operating lease assets and liabilities
Accounts payable
Accrued payroll
Accrued taxes
Other accrued liabilities
Other noncurrent liabilities
Net cash flows provided by (used in) operating activities
Cash flows from investing activities:
Capital expenditures
Acquisitions of restaurant and real estate
Acquisition of Keke’s Breakfast Cafe
Collections (deposits) on real estate acquisitions
Proceeds from sales of real estate and other assets
Investment purchases
Proceeds from sale of investments
Collections on notes receivable
Issuance of notes receivable
Net cash flows provided by (used in) investing activities
Cash flows from financing activities:
Revolver borrowings
Revolver payments
Long-term debt payments
Tax withholding on share-based payments
Deferred financing costs
Purchase of treasury stock
Proceeds from issuance of common stock
Proceeds from exercise of stock options
Net bank overdrafts
Net cash flows provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
December 28, 2022
Fiscal Year Ended
December 29, 2021
(In thousands)
December 30, 2020
$
74,712 $
78,073 $
(5,116)
14,862
(1,005)
(54,989)
634
305
(37)
14,732
546
11,400
(5,892)
(460)
(1,138)
(2,129)
(696)
3,918
(2,850)
(81)
(5,867)
(6,513)
39,452
(11,844)
(750)
(82,500)
3,624
4,144
(1,200)
1,700
246
(16)
(86,596)
175,325
(83,825)
(2,020)
(4,781)
—
(64,975)
—
—
319
20,043
(27,101)
30,624
$
3,523 $
15,446
(46,105)
(12,629)
1,105
21
(523)
14,097
(5,031)
13,602
1,373
(3,879)
7,454
(1,881)
(1,521)
6,608
3,113
(317)
12,684
(5,517)
76,173
(7,355)
(10,369)
—
(3,624)
50,098
(500)
200
684
(120)
29,014
185,000
(225,000)
(2,118)
(1,516)
(1,853)
(29,959)
—
116
(3,125)
(78,455)
26,732
3,892
30,624 $
16,161
1,808
(2,164)
876
(123)
224
3,981
(3,041)
7,948
6,378
101
(3,872)
(1,816)
844
(10,682)
(2,835)
(774)
(5,525)
(5,510)
(3,137)
(6,962)
—
—
—
9,398
(1,400)
2,900
1,814
(1,099)
4,651
140,500
(170,500)
(1,570)
(4,331)
(1,758)
(36,008)
69,571
427
2,675
(994)
520
3,372
3,892
See accompanying notes to consolidated financial statements.
F - 8
Denny’s Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Introduction and Basis of Reporting
Denny’s Corporation, or the Company, is one of America’s largest franchised full-service restaurant chains based on number
of restaurants. As of December 28, 2022, the Company consisted of 1,656 restaurants, 1,582 of which were franchised/licensed
restaurants and 74 of which were company operated. The Company consists of the Denny’s brand (“Denny’s”) and the Keke’s
Breakfast Café brand (“Keke’s”). Keke’s was acquired on July 20, 2022. See Note 3 for details.
At December 28, 2022, the Denny’s brand consisted of 1,602 restaurants, 1,536 of which were franchised or licensed
restaurants and 66 of which were company restaurants. Denny’s restaurants are operated in 50 states, the District of Columbia,
two U.S. territories and 12 foreign countries with principal concentrations in California (23% of total restaurants), Texas (13%)
and Florida (8%).
At December 28, 2022, the Keke's brand consisted of 54 restaurants, 46 of which were franchised restaurants and eight of
which were company operated. All Keke’s restaurants are located in Florida.
Starting in 2020 and continuing through 2022, the global economic crisis resulting from the spread of the coronavirus
(“COVID-19”), along with government and consumer responses, has had a substantial impact on our restaurant operations,
including impacts on labor and commodity costs and the ability of many Denny’s franchise restaurants to return to 24/7
operations. During 2020, many of our company and franchised and licensed restaurants were temporarily closed and most of
the restaurants that remained open had limited operations. Through 2022, many Denny’s restaurants have not returned to full
operating hours, particularly at the late night daypart. Our operating results substantially depend upon the sales volumes,
restaurant profitability, and financial stability of our company and franchised and licensed restaurants.
We cannot currently estimate the duration or future negative financial impact of these economic conditions on our business.
Ongoing material adverse effects of these economic conditions for an extended period could negatively affect our business,
results of operations, liquidity and financial condition and could impact our impairment assessments of accounts receivable,
intangible assets, long-lived assets and goodwill.
Note 2. Summary of Significant Accounting Policies
The following accounting policies significantly affect the preparation of our Consolidated Financial Statements:
Use of Estimates. In preparing our Consolidated Financial Statements in conformity with U.S. generally accepted accounting
principles (GAAP), management is required to make certain assumptions and estimates that affect reported amounts of assets,
liabilities, revenues, expenses and the disclosure of contingencies. In making these assumptions and estimates, management
may from time to time seek advice and consider information provided by actuaries and other experts in a particular area.
Actual amounts could differ materially from these estimates.
Consolidation Policy. Our Consolidated Financial Statements include the financial statements of Denny’s Corporation and its
wholly-owned subsidiaries: Denny’s, Inc., DFO, LLC, Denny’s Realty, LLC, Keke’s Inc., Keke’s Franchise Organization and
East Main Insurance Company. All significant intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year. Our fiscal year ends on the last Wednesday in December. As a result, a fifty-third week is added to a fiscal year
every five or six years. Fiscal 2020 included 53 weeks of operation, whereas 2021 and 2022 each included 52 weeks of operations.
Cash and Cash Equivalents. Our policy is to invest cash in excess of operating requirements in short-term highly liquid
investments with an original maturity of three months or less, which we consider to be cash equivalents. Cash and cash
equivalents include short-term investments of $0.4 million and $0.1 million at December 28, 2022 and December 29, 2021,
respectively.
Receivables. Receivables, which are recorded at net realizable value, primarily consist of trade accounts receivables and
financing receivables from franchisees, vendor receivables and credit card receivables. Trade accounts receivables from
franchisees consist of royalties, advertising and rent. Financing receivables from franchisees primarily consist of notes from
franchisees related to the roll-out of restaurant equipment. We accrue interest on notes receivable based on the contractual
F - 9
terms. The allowance for doubtful accounts is based on management’s estimates of expected credit losses based on historical
write-off experience. Receivables that are ultimately deemed to be uncollectible, and for which collection efforts have been
exhausted, are written off against the allowance for doubtful accounts.
Inventories. Inventories consist primarily of food, beverages and, in some periods, equipment and are valued at the lower of
first-in, first-out cost or net realizable value.
Property and Depreciation. Owned property is stated at cost. Property under finance leases is stated at the lesser of its fair
value or the net present value of the related minimum lease payments at the lease inception. Maintenance and repairs are
expensed as incurred. We depreciate owned property over its estimated useful life using the straight-line method. We amortize
property held under finance leases (at capitalized value) over the lesser of its estimated useful life or the lease term. Building
assets are assigned estimated useful lives that range from five to 30 years. Other property and equipment assets are assigned
lives that range from two to ten years. Leasehold improvements are generally assigned lives between five and 15 years limited
by the expected lease term.
Goodwill. Amounts recorded as goodwill primarily represent excess reorganization value recognized as a result of our 1998
bankruptcy and from our acquisition of Keke’s in 2022. We also record goodwill in connection with the acquisition of restaurants
from franchisees. Likewise, upon the sale of restaurant operations to franchisees, goodwill is decremented. We test goodwill for
impairment at each fiscal year end and more frequently if circumstances indicate impairment may exist. Such indicators include,
but are not limited to, a significant decline in our expected future cash flows, a significant adverse decline in our stock price,
significantly adverse legal developments and a significant change in the business climate.
Intangible Assets. Intangible assets consist primarily of trade names, franchise agreements and reacquired franchise rights.
Trade names are considered indefinite-lived intangible assets and are not amortized. Franchise agreements are amortized
using the straight-line basis over the term of the related franchise agreement. Reacquired franchise rights are amortized using
the straight-line basis over the term of the related franchise agreement. Franchise agreements and reacquired franchise rights
resulting from acquisitions are accounted for using the purchase method of accounting and are estimated by management
based on the fair value of the assets received.
We test trade name assets for impairment at each fiscal year end, and more frequently if circumstances indicate impairment
may exist. We assess impairment of reacquired franchise rights and franchise agreements whenever changes or events indicate
that the carrying values may not be recoverable. Costs incurred to renew or extend the term of recognized intangible assets are
recorded in general and administrative expenses in our Consolidated Statements of Operations.
Marketable Securities. Marketable securities included in investments consist of available for sale equity instruments and
are recorded at fair market value in our Consolidated Balance Sheets. The aggregate cost and fair value of these marketable
securities was $1.9 million and $1.7 million, respectively, at December 28, 2022 and $2.5 million and $2.6 million, respectively,
at December 29, 2021. Unrealized gains (losses) included in fair value were losses of $0.2 million, gains of $0.1 million and
losses of $0.1 million at December 28, 2022, December 29, 2021 and December 30, 2020, respectively.
Marketable securities included in other noncurrent assets consist of trading debt and equity mutual funds and are recorded at
fair market value in our Consolidated Balance Sheets. These securities represent the plan assets of our nonqualified deferred
compensation plan (the “plan assets”). The plan assets are held in a rabbi trust. Each plan participant’s account consists of
their contribution, our matching contribution (made prior to 2016) and each participant’s share of earnings or losses in the
plan. We have recorded offsetting deferred compensation liabilities as a component of other noncurrent liabilities in our
Consolidated Balance Sheets.
The realized and unrealized holding gains and losses related to marketable securities are recorded in other nonoperating
income with an offsetting amount recorded in general and administrative expenses related to deferred compensation plan
liabilities. During 2022, 2021 and 2020, we incurred a net loss of $2.2 million and net gains of $2.2 million and $1.8 million,
respectively, related to marketable securities.
Deferred Financing Costs. Costs related to the issuance of debt are deferred and amortized as a component of interest
expense using the effective interest method over the terms of the respective debt issuances.
Self-insurance Liabilities. We record liabilities for insurance claims during periods in which we have been insured under
large deductible programs or have been self-insured for our medical claims and workers’ compensation, general, product
and automobile insurance liabilities. The liabilities represent estimated incurred losses. These estimates include assumptions
F - 10
regarding claims frequency and severity as well as changes in our business environment, medical costs and the regulatory
environment that could impact our overall self-insurance costs.
Total workers’ compensation, general, product and automobile insurance liabilities at December 28, 2022 and December 29, 2021
were $9.7 million and $11.5 million, respectively.
Income Taxes. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. All deferred taxes
are reported as noncurrent in our Consolidated Balance Sheets. A valuation allowance reduces our net deferred tax asset to the
amount that is more likely than not to be realized. We make certain estimates and judgments in the calculation of our provision
for incomes taxes, in the resulting tax liabilities, and in the recoverability of deferred tax assets.
We recognize positions taken or expected to be taken in a tax return in the Consolidated Financial Statements when it is
more-likely-than-not that the position would be sustained upon examination by tax authorities. A recognized tax position is
then measured at the largest amount of benefit with greater than 50% likelihood of being realized upon ultimate settlement.
We recognize any interest and penalties related to unrecognized tax benefits in income tax expense. Assessment of uncertain
tax positions requires judgments relating to the amounts, timing and likelihood of resolution.
Leases and Subleases.
Lessee
We lease certain real estate and equipment for our restaurants and support facilities. At contract inception, we determine whether
a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period
of time. We recognize a lease liability and a right-of-use (“ROU”) asset at the lease commencement date.
For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments
at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as for
operating leases, and is subsequently measured at amortized cost using the effective interest method.
Operating lease ROU assets are initially and subsequently measured throughout the lease term at the carrying amount of the lease
liability adjusted for initial direct costs, prepayments, accrued payments and lease incentives, if any. Lease cost is recognized on a
straight-line basis over the lease term. Operating lease payments are classified as cash flows for operating activities with ROU
asset amortization and the change in the lease liability combined as "Operating lease assets/liabilities" in the reconciliation of net
income (loss) to net cash flows provided by (used in) operating activities in the Consolidated Statement of Cash Flows. Finance
lease ROU assets are initially measured at cost and subsequently amortized on a straight-line basis over the lesser of the useful life
or the lease term. Finance lease payments are classified as cash flows used in financing activities in the Consolidated Statement of
Cash Flows. Operating and finance lease ROU assets are assessed for impairment using long-lived assets impairment guidance.
We use a consistent lease term for calculating the depreciation period for the related assets, classifying the lease and computing
periodic rent expense where the lease terms include escalations in rent over the lease term.
The lease guidance provides for certain practical expedients and accounting elections. We elected the practical expedient to
not separate nonlease components (such as common area maintenance) from lease components in regard to all leases and the
portfolio approach in applying the discount rate to our leases.
Key estimates and judgments include how we determine (1) lease payments, (2) lease term and (3) the discount rate used to
discount the unpaid lease payments to present value.
We have certain lease agreements structured with both a fixed base rent and a contingent rent based on a percentage of sales
over contractual levels, others with only contingent rent based on a percentage of sales and some with a fixed base rent adjusted
periodically for inflation or changes in the fair market rent rate. Contingent rent is recognized as sales occur. Our lease agreements
do not contain any material residual value guarantees or material restrictive covenants.
The exercise of lease renewal options is at our sole discretion, except in certain sublease situations in which we have
determined that it is reasonably certain that one or more options will be exercised, including where the exercise of a sublease
F - 11
option compels us to exercise the renewal option of the underlying master lease. Renewal option periods are included in the
measurement of lease ROU asset and lease liability where the exercise is reasonably certain to occur.
The discount rate used to determine the present value of the lease payments is our estimated collateralized incremental
borrowing rate, based on the yield curve for the respective lease terms, as we generally cannot determine the interest rate
implicit in the lease.
Abatements or deferrals in rents received from landlords as a result of the COVID-19 pandemic are recognized as reductions
in variable lease payments.
Lessor
We lease or sublease certain restaurant properties to our franchisees and occasionally to third parties. The lease descriptions,
terms, variable lease payments and renewal options are the same as the lessee leases described above. Contingent rental income
is recognized when earned. Similar to our lessee accounting, we elected the lessor practical expedient to not separate nonlease
components from lease components in regard to all leases.
Employee Benefit Plans. Each year we measure and recognize the funded status of our defined benefit plans in our Consolidated
Balance Sheets as of December 31. That date represents the month-end that is closest to our fiscal year-end. The funded status is
adjusted for any contributions or significant events (such as a plan amendment, settlement, or curtailment that calls for a
remeasurement) that occurs between our fiscal year-end and December 31.
Derivative Instruments. We use derivative financial instruments to manage our exposure to interest rate risk. We do not enter
into derivative instruments for trading or speculative purposes. All derivatives are recognized on our Consolidated Balance
Sheets at fair value. Changes in the fair values of derivatives are recorded in earnings or other comprehensive income (“OCI”),
based on whether the instrument is designated as a hedge transaction. Gains or losses on derivative instruments reported in OCI
are classified to earnings in the period the hedged item affects earnings. If the underlying hedge transaction ceases to exist, any
associated amounts reported in OCI are reclassified to earnings. By entering into derivative instruments, we are exposed to
counterparty credit risk. When the fair value of a derivative instrument is in an asset position, the counterparty has a liability
to us, which creates credit risk for us. We manage our exposure to this risk by selecting counterparties with investment
grade credit ratings and regularly monitoring our market position with each counterparty.
Contingencies and Litigation. We are subject to legal proceedings involving ordinary and routine claims incidental to our
business, as well as legal proceedings that are nonroutine and include compensatory or punitive damage claims. Settlement
costs are accrued when they are deemed estimable and probable. Our ultimate legal and financial liability with respect to such
matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation
settlements. When the reasonable estimate is a range, the recorded loss will be the best estimate within the range. We record
legal settlement costs as other operating expenses in our Consolidated Statements of Operations as those costs are incurred.
Comprehensive Income (Loss). Comprehensive income (loss) includes net income (loss) and OCI items that are excluded from
net income (loss) under U.S. generally accepted accounting principles. OCI items include additional minimum pension liability
adjustments, the effective unrealized portion of changes in the fair value of cash flow hedges, and the reclassification and
amortization of loss related to the dedesignation of cash flow derivatives.
Revenues.
Company Restaurant Revenue. Company restaurant revenue is recognized at the point in time when food and beverage
products are sold at company restaurants. We present company restaurant sales net of sales-related taxes collected from
customers and remitted to governmental taxing authorities.
Franchise Revenue. Franchise and license revenues consist primarily of royalties, advertising revenue, initial and other fees
and occupancy revenue.
Under franchise agreements we provide franchisees with a license of our respective brands’ symbolic intellectual property,
administration of advertising programs (including local co-operatives), and other ongoing support functions. These services
are highly interrelated so we do not consider them to be individually distinct performance obligations, and therefore account
for them as a single performance obligation.
F - 12
Royalty and advertising revenues represent sales-based royalties that are recognized in the period in which the sales occur.
Sales-based royalties are variable consideration related to our performance obligation to our franchisees to maintain the
intellectual property being licensed. Under our franchise agreements, franchisee advertising contributions must be spent on
marketing and related activities. Advertising revenues and expenditures are recorded on a gross basis within the Consolidated
Statements of Operations.
Initial and other fees include initial, successor and assignment franchise fees (“initial franchise fees”). Initial franchise fees are
billed and received upon the signing of the franchise agreement. Recognition of these fees is deferred until the commencement
date of the agreement and occurs over time based on the term of the underlying franchise agreement. Acquired initial franchise
fees are recognized from the acquisition date over time based on the term of the underlying franchise agreement. In the event a
franchise agreement is terminated, any remaining deferred fees are recognized in the period of termination.
Initial and other fees also include revenue that are distinct from the franchise agreement and are separate performance obligations.
Training and other franchise services fees are billed and recognized at a point in time as services are rendered. Equipment
revenues are billed and recognized as the equipment is installed. Similar to advertising revenue, equipment revenues and other
franchise services fees are recorded on a gross basis within the Consolidated Statements of Operations.
We record contract assets related to incentives and subsidies provided to franchisees related to new unit openings and/or
equipment upgrades. These contract assets are presented within prepaid and other current assets and other noncurrent assets
in our Consolidated Balance Sheets. These assets are amortized as a reduction to franchise and license revenue within our
Consolidated Statements of Operations over the remaining term of the underlying franchise agreement.
Occupancy revenue results from leasing or subleasing restaurants to franchisees and is recognized over the term of the
lease agreement.
With the exception of initial and other franchise fees, revenues are typically billed and collected on a weekly basis. For 2022,
2021 and 2020, our ten largest franchisees accounted for 37%, 37% and 39% of our franchise revenues, respectively.
Gift cards. Company restaurants, franchised restaurants and certain third party retailers sell gift cards which have no stated
expiration dates. We recognize revenue when a gift card is redeemed in one of our company restaurants. We maintain a gift
card liability for cards sold in our company restaurants and for cards sold by third parties. Gift card breakage is recognized
proportionally as redemptions occur. Our gift card breakage primarily relates to cards sold by third parties and is recorded as
advertising revenue (included as a component of franchise and license revenue).
Advertising Costs. We expense production costs for radio and television advertising in the year in which the commercials are
initially aired and other advertising costs as incurred. Advertising costs for company restaurants are recorded as a component
of other operating expenses in our Consolidated Statements of Operations and were $5.3 million, $4.6 million and $3.9 million
for 2022, 2021 and 2020, respectively. Advertising costs related to franchised restaurants are recorded as a component of
franchise and license costs and were $75.9 million, $70.0 million and $53.7 million in 2022, 2021 and 2020, respectively.
Under our franchise agreements, advertising contributions received from franchisees must be spent on advertising, product
development, marketing and related activities. As the Company is contractually required to spend these contributions on
advertising costs, the obligations are accrued and advertising costs expensed when the related revenues are recognized.
Restructuring and Exit Costs. Restructuring and exit costs are included as a component of operating (gains), losses and other
charges, net in our Consolidated Statements of Operations. Restructuring costs consist primarily of severance and other
restructuring charges for terminated employees. Amounts recorded as exit costs include period costs related to closed units.
Disposal or Impairment of Long-lived Assets. We evaluate our long-lived assets for impairment at the restaurant level on a
quarterly basis, when assets are identified as held for sale or whenever changes or events indicate that the carrying value may not
be recoverable. For assets identified as held for sale, we use the market approach and consider proceeds from similar asset sales.
We assess impairment of restaurant-level assets based on the operating cash flows of the restaurant, expected proceeds from the
sale of assets and our plans for restaurant closings. For underperforming assets, we use the income approach to determine both the
recoverability and estimated fair value of the assets. To estimate future cash flows, we make certain assumptions about expected
future operating performance, such as revenue growth, operating margins, risk-adjusted discount rates, and future economic and
market conditions. If the long-lived assets of a restaurant are not recoverable based upon estimated future, undiscounted cash
flows, we write the assets down to their fair value. If these estimates or their related assumptions change in the future, we may be
required to record additional impairment charges. These charges are included as a component of operating (gains), losses and
other charges, net in our Consolidated Statements of Operations.
F - 13
Assets held for sale consist of real estate properties and/or restaurant operations that we expect to sell within the next year. The
assets are reported at the lower of carrying amount or fair value less costs to sell. Fair value is based upon Level 2 inputs, which
include sales agreements. We cease recording depreciation on assets that are classified as held for sale. If the determination is
made that we no longer expect to sell an asset within the next year, the asset is reclassified out of held for sale.
Discontinued Operations. We evaluate restaurant closures and assets reclassified to assets held for sale for potential disclosure
as discontinued operations. Only disposals resulting in a strategic shift that will have a major effect on our operations and
financial results are reported as discontinued operations. There have been no such disposals, nor any disposals of individually
significant components. The gains and losses related to restaurant closures and assets reclassified to assets held for sale are
included as a component of operating (gain), losses and other charges, net in our Consolidated Statements of Operations.
Gains and Losses on Sales of Restaurants Operations to Franchisees, Real Estate and Other Assets. Generally, gains and
losses on sales of restaurant operations to franchisees (which may include real estate), real estate properties and other assets
are recognized when the sales are consummated and certain other gain recognition criteria are met. Total gains and losses are
included as a component of operating (gains), losses and other charges, net in our Consolidated Statements of Operations.
Share-based Compensation. Share-based compensation cost is measured at the grant date, based on the fair value of the award,
and is recognized as an expense over the requisite service period. Share-based compensation expense is included as a component
of general and administrative expenses in our Consolidated Statements of Operations. We account for forfeitures as they occur.
Excess tax benefits recognized related to share-based compensation are included as a component of provision for (benefit from)
income taxes in our Consolidated Statements of Operations and are classified as operating activities in our Consolidated
Statements of Cash Flows.
Generally, compensation expense related to performance share units and restricted stock units is based on the number of units
granted, the period over which they are expected to vest and the fair market value of our common stock on the date of the grant.
For restricted stock units and performance share units that contain a market condition, compensation expense is based on the
Monte Carlo valuation method, which utilizes multiple input variables to determine the probability of the Company achieving
the market condition and the fair value of the award. The key assumptions used include expected volatility and risk-free
interest rates over the term of the award.
We generally recognize compensation cost associated with performance share units over the entire performance period on a
straight-line basis. For performance share units awarded to certain retirement eligible individuals with accelerated vesting terms,
compensation cost is recognized on a graded-vesting basis. We generally recognize compensation cost associated restricted stock
units on a straight-line basis over the entire performance period of the award.
Subsequent to the vesting period, earned stock-settled restricted stock units and performance share units (both of which are
equity classified) are paid to the holder in shares of our common stock, provided the holder was still employed with the
Company or an affiliate as of the vesting date.
Earnings (Losses) Per Share. Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares and potential common shares outstanding during the period.
Business Combinations. We account for acquisitions using the acquisition method of accounting. Accordingly, assets acquired
and liabilities assumed are recorded at their estimated fair values at the acquisition date. The excess of purchase price over fair
value of net assets acquired, including the amount assigned to identifiable intangible assets, is recorded as goodwill.
Newly Adopted Accounting Standards
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting” which was later clarified in January 2021 by ASU 2021-01, “Reference Rate Reform
(Topic 848): Scope”. Additionally, in December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848):
Deferral of the Sunset Date of Topic 848”, which allows ASU 2020-04 to be adopted and applied prospectively to contract
modifications made on or before December 31, 2024. The guidance provides optional guidance, for a limited time, to ease the
potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The Company
adopted ASU 2020-04 on March 12, 2020. The adoption of and future elections under this new guidance did not and are not
expected to have a material impact on the Company’s consolidated financial position or results of operations. The guidance is
effective through December 31, 2024.
F - 14
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”,
which modifies Topic 740 to simplify the accounting for income taxes. ASU 2019-12 is effective for financial statements issued
for annual periods beginning after December 15, 2020, and for the interim periods therein. The adoption of ASU 2019-12 did not
have a significant impact on the Company’s consolidated financial position or results of operations.
Additional new accounting guidance became effective for us as of December 28, 2022 that we reviewed and concluded was
either not applicable to our operations or had no material effect on our Consolidated Financial Statements and related disclosures.
Accounting Standards to be Adopted
We reviewed all other newly issued accounting pronouncements and concluded that they are either not applicable to our
business or are not expected to have a material effect on our Consolidated Financial Statements as a result of future adoption.
Note 3. Acquisition of Keke’s Breakfast Cafe
On July 20, 2022, the Company completed its acquisition of Keke's pursuant to that certain Asset Purchase Agreement (the
"Purchase Agreement"), dated May 3, 2022, which was subsequently amended by the First Amendment to Asset Purchase
Agreement (the "First Amendment"), dated July 11, 2022, by and between the Company, as purchaser, and K2 Restaurants,
Inc. together with the other sellers and principals party thereto, for the acquisition of certain assets and assumption of certain
liabilities of the franchise business, consisting of 44 franchised restaurants, and eight company owned and operated restaurants.
Pursuant to the Purchase Agreement, we agreed to purchase Keke's for a purchase price of $82.5 million. The purchase price
was funded by utilizing cash on hand as well as funds from the Company's revolving credit facility.
The acquisition was accounted for as a business combination using the acquisition method of accounting. The preliminary
allocation of the purchase price is based on management's analysis, including work performed by third party valuation
specialists. We will continue to obtain information to assist in determining the fair value of net assets acquired during the
measurement period.
The components of the preliminary purchase price allocation were as follows:
(In thousands)
$
82,500
2,015
7,908
10,700
35,600
7,908
992
36
47,287
35,213
Total consideration paid
Assets:
Property
Operating lease ROU assets
Franchise agreements
Trade name
Liabilities:
Operating lease liabilities
Deferred franchise revenue
Other liabilities
Net assets acquired, excluding goodwill
Goodwill
$
The Keke's trade name has been assigned an indefinite life, and therefore, will not be amortized, but rather tested annually
for impairment. At the acquisition date, franchise agreements had a weighted average useful life of approximately 15 years.
Goodwill attributable to the Keke's acquisition will be deductible and amortized for tax purposes. Goodwill is considered to
represent the value associated with the workforce and synergies anticipated to be realized as a combined company.
Acquisition transaction costs totaling approximately $0.6 million during the year ended December 28, 2022 were recorded
in general and administrative expenses in the accompanying Consolidated Statements of Operations.
Results of operations starting from the date of acquisition of Keke's have been included in our Consolidated Financial
Statements for the year ended December 28, 2022. The Keke's acquisition is not material to our Consolidated Financial
F - 15
Statements, and therefore, supplemental pro forma financial information for the year ended December 28, 2022 and the
respective prior year periods related to the acquisition is not included herein.
Note 4. Receivables
Receivables, net consisted of the following:
Receivables, net:
Trade accounts receivable from franchisees
Other receivables from franchisees
Vendor receivables
Credit card receivables
Other
Allowance for doubtful accounts
Total receivables, net
Other noncurrent assets:
Financing receivables from franchisees
December 28, 2022 December 29, 2021
(In thousands)
$
13,314 $
6,731
3,466
896
1,545
(376)
13,430
1,027
4,041
747
950
(574)
$
$
25,576 $
19,621
— $
293
We recorded $1.5 million of expected credit losses during the year ended December 30, 2020. During the years ended
December 29, 2021 and December 28, 2022 we recorded reversals of credit losses of $1.1 million and $0.1 million,
respectively, based on actual and expected losses on franchise-related receivables, primarily as a result of uncertainties
related to the impacts of the COVID-19 pandemic.
Note 5. Property
Property, net consisted of the following:
Land
Buildings and leasehold improvements
Other property and equipment
Total property
Less accumulated depreciation
Property, net
December 28, 2022 December 29, 2021
(In thousands)
$
42,374 $
164,782
40,647
247,803
153,334
$
94,469 $
43,742
163,264
36,006
243,012
151,836
91,176
F - 16
The following table reflects the property assets, included in the table above, and buildings with finance leases which were
leased to franchisees:
December 28, 2022
December 29, 2021
Land
Buildings and leasehold improvements
Total property owned, leased to franchisees
Less accumulated depreciation
Property owned, leased to franchisees, net
Buildings held under finance leases, leased to franchisees
Less accumulated amortization
Property held under finance leases, leased to franchisees, net
(In thousands)
$
23,825 $
67,283
91,108
57,253
33,855
7,047
4,339
2,708
Total property leased to franchisees, net
$
36,563 $
25,192
69,656
94,848
60,674
34,174
8,060
4,781
3,279
37,453
Depreciation expense, including amortization of property under finance leases, for 2022, 2021 and 2020 was $12.8 million,
$13.3 million and $13.2 million, respectively. Substantially all owned property is pledged as collateral for our Credit Facility.
See Note 10.
Note 6. Goodwill and Intangible Assets
The following table reflects the changes in carrying amounts of goodwill and goodwill by segment:
Balance, beginning of year
Additions related to acquisition of Keke’s
Adjustments related to the acquisition of a Denny’s franchise unit
Balance, end of year
Goodwill by segment
Denny’s
Other
Total goodwill
Intangible assets consist of the following:
December 28, 2022
December 29, 2021
$
$
$
$
(In thousands)
36,884 $
36,884
35,213
643
—
—
72,740 $
36,884
37,527 $
35,213
72,740 $
36,884
—
36,884
Intangible assets with indefinite lives:
Trade names
Liquor licenses
Intangible assets with definite lives:
Reacquired franchise rights
Franchise agreements
Intangible assets, net
December 28, 2022
December 29, 2021
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
(In thousands)
$
79,687 $
— $
44,087 $
120
—
120
10,489
10,700
5,697
265
12,218
—
$
100,996 $
5,962 $
56,425 $
—
—
6,199
—
6,199
F - 17
The weighted-average life of reacquired franchise rights is approximately seven years. The weighted-average life of franchise
agreements is approximately 14 years. The amortization expense for definite-lived intangibles and other assets for 2022, 2021
and 2020 was $2.0 million, $2.1 million and $3.0 million, respectively. Estimated amortization expense for intangible assets
with definite lives in the next five years is as follows:
2023
2024
2025
2026
2027
$
(In thousands)
1,550
1,480
1,424
1,256
1,207
We performed an annual impairment test as of December 28, 2022 and determined that none of the recorded goodwill or other
intangible assets with indefinite lives were impaired.
Note 7. Other Current Liabilities
Other current liabilities consisted of the following:
Accrued payroll
Accrued insurance, primarily current portion of liability for insurance claims
Accrued taxes
Accrued advertising
Gift cards
Accrued legal settlements
Other
Other current liabilities
December 28, 2022 December 29, 2021
$
$
(In thousands)
17,903
$
3,492
4,452
6,069
7,675
5,446
11,725
56,762
$
20,676
4,285
4,533
15,355
7,170
3,173
8,954
64,146
F - 18
Note 8. Fair Value of Financial Instruments
Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis
Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair value measurements as of December 28, 2022:
Deferred compensation plan investments (1)
Interest rate swaps (2)
Investments (3)
Total
Fair value measurements as of December 29, 2021:
Deferred compensation plan investments (1)
Interest rate swaps (2)
Investments (3)
Total
Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(In thousands)
$
10,818
$
10,818
$
— $
20,047
1,746
—
—
20,047
1,746
$
32,611
$
10,818
$
21,793
$
$
13,726
$
13,726
$
— $
(52,121)
2,551
—
—
(52,121)
2,551
$ (35,844) $
13,726
$
(49,570) $
—
—
—
—
—
—
—
—
(1) The fair values of our deferred compensation plan investments are based on the closing market prices of the elected investments and are included
in other noncurrent assets in our Consolidated Balance Sheets.
(2) The fair values of our interest rate swaps are based upon Level 2 inputs, which include valuation models. The key inputs for the valuation models
are quoted market prices, interest rates, forward yield curves and credit risk adjustments that are necessary to reflect the probability of default by
the counterparty or us. For disclosures about the fair value measurements of our derivative instruments, see Note 10.
(3) The fair value of investments is valued using a readily determinable net asset value per share based on the fair value of the underlying securities.
There are no significant redemption restrictions associated with these investments.
Those assets and liabilities measured at fair value on a nonrecurring basis are summarized below:
Fair value measurements as of December 29, 2021:
Assets held and used (1)
Significant
Unobservable
Inputs
(Level 3)
Impairment
Charges
(In thousands)
$
313
$
442
(1) At December 29, 2021, impaired assets were written down to their fair value. To determine fair value, we used the income approach, which assumes
that the future cash flows reflect current market expectations. These fair value measurements require significant judgment using Level 3 inputs, such
as discounted cash flows from operations, which are not observable from the market, directly or indirectly. There is uncertainty in the projected
future cash flows used in the Company's impairment analysis, which requires the use of estimates and assumptions. If actual performance does not
achieve the projections, or if the assumptions used change in the future, we may be required to recognize impairment charges in future periods.
Assets that are measured at fair value on a non-recurring basis include property, operating right-of-use assets, finance right-of-use
assets and reacquired franchise rights. During the year ended December 28, 2022 and December 29, 2021, we recognized
impairment charges of $1.0 million and $0.4 million, respectively, related to certain of these assets. See Note 14.
The carrying amounts of cash and cash equivalents, accounts receivables, accounts payable and accrued expenses are deemed
to approximate fair value due to the immediate or short-term maturity of these instruments. The fair value of notes receivable
approximates the carrying value after consideration of recorded allowances and related risk-based interest rates. The liabilities
under our credit facility are carried at historical cost, which approximates fair value. The fair value of our senior secured
revolver approximates its carrying value since it is a variable rate facility (Level 2). The determinations of fair values of certain
tangible and intangible assets for purposes of the application of the acquisition method of accounting to the acquisition of Keke’s
were based on Level 3 inputs.
F - 19
Note 9. Leases
Lessee
Our operations utilize property, facilities and equipment leased from others. Buildings and facilities are primarily used for
restaurants and support facilities. Many of our restaurants are operated under lease arrangements which generally provide for
a fixed base rent, and, in many instances, contingent rent based on a percentage of gross revenues. Initial terms of land and
restaurant building leases generally range from 10 to 20 years, exclusive of options to renew, which are typically for five
year periods. Leases of equipment consist primarily of restaurant equipment, computer equipment and vehicles. Initial terms
of equipment leases generally range from three to five years.
Lessor
We lease or sublease certain restaurant properties to our franchisees and occasionally to third parties. The lease descriptions,
terms, variable lease payments and renewal options are generally the same as the lessee leases described above.
The components of lease costs were as follows:
Classification
December 28, 2022 December 29, 2021
Fiscal Year Ended
Lease costs
Finance lease costs:
Amortization of right-of-use assets
Depreciation and amortization
$
Interest on lease liabilities
Operating lease costs:
Operating lease costs - company
Operating lease costs - franchise
Interest expense, net
Occupancy
Costs of franchise and license revenue
Operating lease costs - general and administrative General and administrative expenses
Operating lease costs - closed stores
Restructuring charges and exit costs
Variable lease costs:
Variable lease costs - company
Variable lease costs - franchise
Occupancy
Costs of franchise and license revenue
Variable lease costs - general and administrative
General and administrative expenses
Variable lease costs - closed stores
Restructuring charges and exit costs
Sublease income:
Sublease income - franchise
Franchise and license revenue
Sublease income - closed stores
Restructuring charges and exit costs
(In thousands)
1,704 $
2,350
7,624
15,541
564
201
3,988
6,596
255
34
(27,445)
(229)
Total lease costs
$
11,183 $
1,895
2,960
6,394
17,106
432
356
3,275
7,172
218
48
(30,607)
(160)
9,089
Lease terms and discount rates were as follows:
Weighted-average remaining lease term (in years):
Finance leases
Operating leases
Weighted-average discount rate:
Finance leases
Operating leases
December 28, 2022 December 29, 2021
8.4
9.4
23.5 %
5.8 %
8.5
10.0
23.4 %
5.7 %
F - 20
The components of lease income were as follows:
Classification
December 28, 2022 December 29, 2021
Fiscal Year Ended
(In thousands)
Lease income
Operating lease income - franchise
Franchise and license revenue
$
28,473 $
30,767
Operating lease income - closed stores
Restructuring charges and exit costs
Operating lease income - general and administrative General and administrative expenses
Variable lease income - franchise
Franchise and license revenue
Variable lease income - closed stores
Restructuring charges and exit costs
183
140
10,124
46
Total lease income
$
38,966 $
109
65
10,999
51
41,991
Cash and supplemental noncash amounts were as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for new finance lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities (1)
Fiscal Year Ended
December 28, 2022 December 29, 2021
(In thousands)
$
$
$
$
$
2,350 $
24,626 $
2,020 $
537 $
16,040 $
2,960
25,578
2,118
998
8,513
(1) Right-of-use assets obtained in 2022 includes $7.9 million from the acquisition of Keke’s. See Note 3.
Maturities of lease liabilities and receipts as of December 28, 2022 were as follows:
2023
2024
2025
2026
2027
Thereafter
Total undiscounted cash flows
Less: interest
Present value of lease liabilities
Less: current lease liabilities
Long-term lease liabilities
Lease Liabilities
Lease Receipts
Finance
Operating
Operating
$
3,768 $
23,031 $
(In thousands)
3,047
2,911
2,576
2,197
11,514
26,013
14,775
11,238
1,683
$
9,555 $
21,538
20,267
19,427
17,525
80,781
182,569 $
43,855
138,714
15,310
123,404
25,816
24,454
24,220
23,768
22,195
138,095
258,548
F - 21
Note 10. Long-Term Debt
Long-term debt consisted of the following:
Revolving loans
Finance lease obligations
Total long-term debt
Less current maturities of finance lease obligations
Noncurrent portion of long-term debt
December 28, 2022 December 29, 2021
$
$
(In thousands)
261,500 $
11,238
272,738
1,683
271,055 $
170,000
12,696
182,696
1,952
180,744
There are no scheduled maturities of our revolving loans due in 2023 through 2025. The $261.5 million of revolving loans are
due August 26, 2026.
The Company and certain of its subsidiaries have a credit facility consisting of a five-year $400 million senior secured
revolver (with a $25 million letter of credit sublimit). The credit facility includes an accordion feature that would allow us
to increase the size of the revolver to $450 million. Borrowings bear a tiered interest rate, which is based on the Company's
consolidated leverage ratio. The credit facility contains provisions specifying alternative interest rate calculations to be used
at such time LIBOR ceases to be available as a benchmark due to reference rate reform. The maturity date for the credit
facility is August 26, 2026.
The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit facility
is guaranteed by the Company and its material subsidiaries and is secured by assets of the Company and its subsidiaries,
including the stock of its subsidiaries (other than its insurance captive subsidiary). It includes negative covenants that are usual
for facilities and transactions of this type. The credit facility also includes certain financial covenants with respect to a maximum
consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. We were in compliance with all financial
covenants as of December 28, 2022.
As of December 28, 2022, we had outstanding revolver loans of $261.5 million and outstanding letters of credit under the credit
facility of $12.3 million. These balances resulted in unused commitments of $126.2 million as of December 28, 2022 under the
credit facility.
As of December 28, 2022, borrowings under the credit facility bore interest at a rate of LIBOR plus 2.25% and the commitment
fee, paid on the unused portion of the credit facility, was set to 0.35%.
Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding
revolver loans was 6.37% and 2.09% as of December 28, 2022 and December 29, 2021, respectively. Taking into consideration
our interest rate swaps that are designated as cash flow hedges, the weighted-average interest rate of outstanding revolver loans
was 5.31% and 4.44% as of December 28, 2022 and December 29, 2021, respectively.
Interest Rate Hedges
We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt. We initially
designated the interest rate swaps as cash flow hedges of our exposure to variability in future cash flows attributable to variable
interest payments due on forecasted notional amounts. A summary of our interest rate swaps as of December 28, 2022 is as follows:
F - 22
Trade Date
Effective Date
Maturity Date
Notional
Amount
Fair Value
Fixed Rate
(In thousands)
Swaps designated as
cash flow hedges
March 20, 2015
March 29, 2018
March 31, 2025
October 1, 2015
March 29, 2018
March 31, 2026
Dedesignated swaps
February 15, 2018
March 31, 2020
December 31, 2033
Total
$
$
$
$
120,000
50,000
$
$
130,000 (1) $
300,000
$
4,904
2,392
12,751
20,047
2.44 %
2.46 %
3.19 %
(1) The notional amount of the swaps entered into on February 15, 2018 increase periodically until they reach the maximum notional amount of $425.0
million on September 28, 2029.
Swaps Designated as Cash Flow Hedges
To the extent the swaps are highly effective in offsetting the variability of the hedged cash flows, changes in the fair value
of the swaps are not included in the Consolidated Statements of Operations but are reported as a component of accumulated
other comprehensive loss, net. The interest rate swaps entered into in 2015 are designated as cash flow hedges with unrealized
gain and losses recorded as a component of accumulated other comprehensive loss, net.
As of December 28, 2022, the fair value of swaps designated as cash flow hedges was an asset of $7.3 million and was recorded
as a component of other noncurrent assets with an offsetting amount (before taxes) recorded as a component of accumulated
other comprehensive loss, net in our Consolidated Balance Sheets. See Note 18 for the amounts recorded in accumulated other
comprehensive loss related to the interest rate swaps. We expect to reclassify approximately $3.3 million from accumulated
other comprehensive loss, net as a reduction to interest expense, net in our Consolidated Statements of Operations related
to swaps designated as cash flow hedges during the next twelve months.
Dedesignated Interest Rate Hedges
During the year ended December 30, 2020, we determined that a portion of the underlying cash flows related to our hedging
relationship entered into in 2018 (“2018 Swaps”) were no longer probable of occurring over the term of the interest rate swaps.
Accordingly, we dedesignated the cash flow relationship and discontinued hedge accounting treatment for the 2018 Swaps.
As a result, we reclassified approximately $7.4 million of losses from accumulated other comprehensive loss, net to other
nonoperating expense (income), net in our Consolidated Statements of Operations and began amortizing the remaining amounts
of unrealized losses related to the 2018 Swaps from accumulated other comprehensive loss, net into our Consolidated Statements
of Operations as a component of interest expense, net over the remaining term of the 2018 Swaps. We reclassified unrealized
losses of less than $0.1 million and approximately $0.2 million to interest expense, net related to the 2018 Swaps, for the years
ended December 28, 2022 and December 29, 2021, respectively. At December 28, 2022, approximately $64.2 million (before
taxes) of unrealized losses remained in accumulated other comprehensive loss, net. We expect to amortize approximately $0.3
million from accumulated other comprehensive loss, net to interest expense, net in our Consolidated Statements of Operations
related to dedesignated interest rate swaps during the next twelve months.
As a result of the dedesignated cash flow relationship related to the 2018 Swaps, changes in the fair value of the 2018 Swaps
are recorded as a component of other nonoperating expense (income), net in our Consolidated Statements of Operations. We
recorded income of approximately $55.0 million and $12.8 million as a component of nonoperating income related to the 2018
Swaps resulting from changes in fair value for the years ended December 28, 2022 and December 29, 2021, respectively. As of
December 28, 2022, the fair value of the dedesignated interest rate swaps was an asset of $12.8 million, of which $0.1 million
was recorded as a component of receivables, net, and $12.7 million was recorded as a component of other noncurrent assets in
our Consolidated Balance Sheets.
F - 23
Note 11. Revenues
The following table disaggregates our revenue by sales channel and type of good or service:
Company restaurant sales
Franchise and license revenue:
Royalties
Advertising revenue
Initial and other fees
Occupancy revenue
Franchise and license revenue
Total operating revenue
Fiscal Year Ended
December 28, 2022
December 29, 2021
December 30, 2020
(In thousands)
$
199,753 $
175,017 $
118,160
113,891
75,926
28,262
38,597
256,676
103,425
69,957
8,009
41,766
223,157
$
456,429 $
398,174 $
67,501
53,745
7,332
41,867
170,445
288,605
Balances related to contracts with customers consists of receivables, contract assets, deferred franchise revenue and deferred
gift card revenue. See Note 4 for details on our receivables.
Deferred franchise revenue consists primarily of the unamortized portion of initial franchise fees that are currently being
amortized into revenue and amounts related to development agreements and unopened restaurants that will begin amortizing
into revenue when the related restaurants are opened. Deferred franchise revenue represents our remaining performance
obligations to our franchisees, excluding amounts of variable consideration related to sales-based royalties and advertising.
The components of the change in deferred franchise revenue are as follows:
Balance, December 29, 2021
Fees received from franchisees
Acquired deferred franchise revenue
Revenue recognized, net (1)
Balance, December 28, 2022
Less current portion included in other current liabilities
Deferred franchise revenue included in other noncurrent liabilities
(In thousands)
$
$
19,896
3,435
992
(3,572)
20,751
2,258
18,493
(1) Of this amount $2.5 million was included in the deferred franchise revenue balance as of December 29, 2021.
We record contract assets related to incentives and subsidies provided to franchisees related to new unit openings and/or
equipment upgrades. These amounts will be recognized as a component of franchise and license revenue over the remaining
term of the related franchise agreements.The components of the change in contract assets are as follows:
Balance, December 29, 2021
Franchisee deferred costs
Contract asset amortization
Balance, December 28, 2022
Less current portion included in other current assets
Contract assets included in other noncurrent assets
(In thousands)
$
$
—
5,953
(592)
5,361
580
4,781
F - 24
During 2021 and 2022, the Company purchased equipment related to a kitchen modernization program for franchise restaurants.
We bill our franchisees and recognize revenue when the related equipment is installed, less a total of approximately $5.7 million
contributed from the Company, which has been deferred as contract assets and included as a component of franchisee deferred
costs in the table above. We recognized $19.1 million and $0.4 million of revenue related to the sale of kitchen equipment to
franchisees during the years ended December 28, 2022 and December 29, 2021, respectively. As of December 28, 2022, we had
approximately $3.6 million in inventory and $6.6 million in receivables related to the kitchen equipment rollout. As of December
29, 2021, we had approximately $3.7 million in inventory and $0.4 million in receivables related to the kitchen equipment rollout.
As of December 28, 2022, deferred franchise revenue, net of contract asset amortization, expected to be recognized in the
future is as follows:
2023
2024
2025
2026
2027
Thereafter
Deferred franchise revenue, net
(In thousands)
1,678
1,655
1,618
1,540
1,454
7,445
15,390
$
$
Deferred gift card liabilities consist of the unredeemed portion of gift cards sold in company restaurants and at third party
locations. The balance of deferred gift card liabilities represents our remaining performance obligations to customers. The
balance of deferred gift card liabilities as of December 28, 2022 and December 29, 2021 was $7.7 million and $7.2 million,
respectively. During the year ended December 28, 2022, we recognized revenue of $0.5 million from gift card redemptions
at company restaurants.
Note 12. Employee Benefit Plans
We maintain defined contribution plans and defined benefit plans which cover a substantial number of employees.
Defined Contribution Plans
Eligible employees can elect to contribute up to 25% of their compensation to our 401(k) plan. Effective January 1, 2016,
the plan was amended and restated to incorporate Safe Harbor Plan design features which included changes to participant
eligibility, company contribution amounts and vesting. As a result, we match up to a maximum of 4% of compensation
deferred by the participant.
In addition, a non-qualified deferred compensation plan is offered to certain employees. This plan allows participants to
defer up to 50% of annual salary and up to 75% of bonuses and incentive compensation awards, on a pre-tax basis. There
are no matching contributions made under this plan.
We made total contributions of $1.7 million, $1.5 million and $1.5 million for 2022, 2021 and 2020, respectively,
under these plans.
F - 25
Defined Benefit Plans
Benefits under our defined benefit plans are based upon each employee’s years of service and average salary. The following table
provides a reconciliation of the changes in the benefit obligations, plan assets, and funded status of our defined benefit plans:
Change in Benefit Obligation:
Benefit obligation at beginning of year
Interest cost
Actuarial (gain) loss
Benefits paid
Settlements
Benefit obligation at end of year
Accumulated benefit obligation
Change in Plan Assets:
Fair value of plan assets at beginning of year
Employer contributions
Benefits paid
Settlements
Fair value of plan assets at end of year
Unfunded status at end of year
Amounts recognized on the balance sheet:
Other current liabilities
Other noncurrent liabilities
Net amount recognized
Amounts in accumulated other comprehensive loss not yet reflected in net period
benefit cost:
Unamortized actuarial losses, net
Other changes in plan assets and benefit obligations recognized in accumulated other
comprehensive loss, net:
Benefit obligation actuarial gain (loss)
Amortization of net loss
Settlement loss recognized
Other comprehensive income
December 28, 2022 December 29, 2021
(In thousands)
$
$
$
$
$
$
$
$
$
$
$
2,219 $
36
(261)
(151)
(237)
1,606 $
1,606 $
— $
388
(151)
(237)
— $
(1,606) $
(972) $
(634)
(1,606) $
2,298
26
46
(151)
—
2,219
2,219
—
151
(151)
—
—
(2,219)
(944)
(1,275)
(2,219)
(516) $
(974)
261 $
123
74
458 $
(46)
159
—
113
The components of net periodic benefit cost, which are included in general and administrative expenses in our Consolidated
Statements of Operations, were as follows:
Interest cost
Amortization of net loss
Settlement loss recognized
Net periodic benefit cost
Assumptions
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
$
$
(In thousands)
36 $
26 $
123
74
159
—
233 $
185 $
41
89
95
225
The discount rates used to determine the benefit obligations as of December 28, 2022 and December 29, 2021 were 5.26% and
1.99%, respectively. The discount rates used to determine net period pension costs for 2022, 2021 and 2020 were 1.99%, 1.34%
and 2.56%, respectively.
F - 26
In determining the discount rates, we have considered long-term bond indices of bonds having similar timing and amounts of
cash flows as our estimated defined benefit payments. We use a yield curve based on high quality, long-term corporate bonds
to calculate the single equivalent discount rate that results in the same present value as the sum of each of the plan’s estimated
benefit payments discounted at their respective spot rates.
Contributions and Expected Future Benefit Payments
We made contributions of $0.4 million and $0.2 million to our defined benefit plans during the years ended December 28, 2022
and December 29, 2021, respectively. We expect to contribute $1.0 million to our defined benefit plans during 2023.
Benefits expected to be paid for each of the next five years and in the aggregate for the five fiscal years from 2028 through
2032 are as follows:
2023
2024
2025
2026
2027
2028 through 2032
Note 13. Share-Based Compensation
Share-Based Compensation Plans
Defined Benefit Plans
(In thousands)
$
972
144
121
119
91
314
The Denny’s Corporation 2021 Omnibus Incentive Plan (the “2021 Omnibus Plan”) is used to grant share-based compensation
to selected employees, officers and directors of Denny’s and its affiliates. However, we reserve the right to pay discretionary
bonuses, or other types of compensation, outside of this plan. At December 28, 2022, there were 3.0 million shares available for
grant under the 2021 Omnibus Plan. In addition, we have 0.7 million shares available to be issued outside of the 2021 Omnibus
Plan pursuant to the grant or exercise of employment inducement awards of stock options and restricted stock units in
accordance with Nasdaq Listing Rule 5635(c)(4).
Share-Based Compensation Expense
Total share-based compensation expense included as a component of net income (loss) was as follows:
Employee share awards
Restricted stock units for board members
Total share-based compensation
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
$
$
(In thousands)
10,470 $
12,708 $
930
894
11,400 $
13,602 $
7,104
844
7,948
The income tax benefits recognized as a component of the provision for (benefit from) income taxes in our Consolidated
Statements of Operations related to share-based compensation expense were approximately $2.9 million, $3.4 million and
$2.0 million during the years ended December 28, 2022, December 29, 2021 and December 30, 2020, respectively.
Employee Share Awards
Employee share awards consist of performance share units (“PSUs”) and restricted stock units ("RSUs") (which are equity
classified). The number of shares that are ultimately issued is dependent upon the level of obtainment of the market and
performance conditions. The following table summarizes the employee share awards activity during the year ended
December 28, 2022:
F - 27
Outstanding, beginning of year
Granted
Converted
Forfeited
Outstanding, end of year
Convertible, end of year
Weighted
Average Grant
Date
Fair Value
Units
(In thousands)
2,076 $
1,065 $
(1,415) $
(429) $
1,297 $
159 $
15.57
16.22
12.33
19.62
18.30
15.38
During the year ended December 28, 2022, we granted certain employees approximately 0.3 million performance share units
("PSUs") with a weighted average grant date fair value of $21.05 per share that vest based on the total shareholder return (“TSR”)
of our common stock compared to the TSRs of a group of peer companies and approximately 0.3 million PSUs with a weighted
average grant date fair value of $14.12 per share that vest based on our Adjusted EPS growth rate versus plan, as defined under
the terms of the award. As the TSR based PSUs contain a market condition, a Monte Carlo valuation was used to determine the
grant date fair value. The performance period for these PSUs is the three year fiscal period beginning December 30, 2021 and
ending December 25, 2024. The PSUs will completely vest and be earned at the end of the performance period at which point
the relative TSR and Adjusted EPS growth rate achievement percentages will be applied to the vested units (from 0% to 200%
of the target award).
We also granted certain employees approximately 0.4 million RSUs with a weighted average grant date fair value of $14.08
per share. The RSUs generally vest evenly over the three year period ending December 25, 2024, and are paid annually.
For 2022, 2021 and 2020, the weighted average grant date fair value of awards granted was $16.22, $21.83 and $10.47, respectively.
The following table presents the weighted-average assumptions used in the Monte Carlo simulations to determine the fair value
of PSU awards at the grant date, along with the related weighted-average grant date fair value of PSU awards:
Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
Grant date fair value per unit
December 28, 2022 December 29, 2021 December 30, 2020
1.96%
2.8
66.0%
0.0%
$21.05
0.18%
3.0
64.9%
0.0%
$24.74
0.16%
1.25
59.5%
0.0%
$8.24
The risk-free interest rate was based on U.S. Treasury bond yield with a term equal to the expected life assumed at the date of
grant. The expected term represents the period of time the awards are expected to be outstanding. Expected volatility was based
on historical volatility of the Company. The expected dividend yield is based on the Company’s history and expectations of
dividend payouts at the time of grant.
We made payments of $0.4 million, $0.2 million and $0.4 million during 2022, 2021 and 2020, respectively, related to converted
performance and restricted share units. Payments relate to the payment of payroll taxes. The fair value of units converted was
$13.8 million, $4.3 million and $12.0 million during 2022, 2021 and 2020, respectively. As of December 28, 2022, we had $9.7
million of unrecognized compensation cost related to unvested employee share awards, which is expected to be recognized over
a weighted average of 1.7 years.
Restricted Stock Units for Board Members
During the year ended December 28, 2022, we granted approximately 0.1 million RSUs (which are equity classified) with a
weighted average grant date fair value of $9.93 per unit to non-employee members of our Board. The restricted stock units vest
after a one year service period. A director may elect to convert these awards into shares of common stock on a specific date in
the future (while still serving as a member of our Board), upon termination as a member of our Board or in three equal annual
F - 28
installments commencing after termination of service as a member of our Board. During the year ended December 28, 2022,
less than 0.1 million restricted stock units were converted into shares of common stock.
There were 0.8 million and 0.8 million RSUs outstanding as of December 28, 2022 and December 29, 2021, respectively.
As of December 28, 2022, we had approximately $0.4 million of unrecognized compensation cost related to all unvested
RSU awards outstanding, which is expected to be recognized over a weighted average of 0.4 years.
Stock Options
Prior to 2012, stock options were granted that vest evenly over three years, have a 10-year contractual life and are issued
at the market value at the date of grant. There were no options granted in 2022, 2021 or 2020. There were no stock options
outstanding at December 28, 2022, and there were no stock options exercised for the year ended December 28, 2022. The
total intrinsic value of the options exercised was $0.3 million and $0.8 million during the years ended December 29, 2021
and December 30, 2020, respectively.
Note 14. Operating (Gains), Losses and Other Charges, Net
Operating (gains), losses and other charges, net consists of the following:
Gains on sales of assets and other, net
Restructuring charges and exit costs
Impairment charges
Operating (gains), losses and other charges, net
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
$
$
(In thousands)
(3,378) $
(47,822) $
1,410
963
1,275
442
(1,005) $
(46,105) $
(4,678)
2,403
4,083
1,808
Gains on sales of assets and other, net of $3.4 million for the year ended December 28, 2022 were primarily related to the sales
of two parcels of real estate. Gains on sales of assets and other, net of $47.8 million for the year ended December 29, 2021 were
primarily related to the sales of three parcels of real estate. Gains on sales of assets and other, net of $4.7 million for the year
ended December 30, 2020 were primarily related to the sales of parcels of real estate.
Restructuring charges and exit costs consists of the following:
Exit costs
Severance and other restructuring charges
Total restructuring charges and exit costs
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
(In thousands)
$
$
86 $
1,324
1,410 $
323 $
952
1,275 $
204
2,199
2,403
Exit costs primarily consists of costs related to closed restaurants. Exit cost liabilities related to lease costs are included as a
component of operating lease liabilities in our Consolidated Balance Sheets. See Note 9.
Severance and other restructuring charges for the year ended December 28, 2022 primarily consist of severance costs.
Severance and other restructuring charges for the year ended December 29, 2021 were primarily related to the relocation of
certain support functions to our support center in the Dallas, Texas area. Severance and other restructuring charges for the year
ended December 30, 2020 were primarily related to positions eliminated as a cost reduction effort in response to the COVID-19
pandemic. As of December 28, 2022 and December 29, 2021, we had accrued severance and other restructuring charges of $0.7
million and $0.1 million, respectively. The balance as of December 28, 2022 is expected to be paid during the next 12 months.
We recorded impairment charges of $1.0 million for the year ended December 28, 2022 primarily resulting from
underperforming units. The $1.0 million included $0.6 million related to property, $0.3 million related to operating lease ROU
assets, and less than $0.1 million related to finance lease ROU assets. We recorded impairment charges of $0.4 million for the
year ended December 29, 2021 primarily resulting from an underperforming unit. The $0.4 million included $0.3 million
related to property, $0.1 million related to finance lease ROU assets, and less than $0.1 million related to operating lease ROU
F - 29
assets. We recorded impairment charges of $4.1 million for the year ended December 30, 2020 resulting from the impacts of
the COVID-19 pandemic. The $4.1 million included $2.4 million related to property, $1.6 million related to operating lease
ROU assets, $0.1 million related to reacquired franchise rights and less than $0.1 million related to finance lease ROU assets.
Note 15. Income Taxes
The provisions for (benefits from) income taxes were as follows:
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
(In thousands)
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Increase (decrease) of valuation allowance
$
6,128 $
12,997 $
2,160
1,152
11,043
3,689
546
3,105
862
6,826
7,271
(5,031)
Total provision for (benefit from) income taxes
$
24,718 $
26,030 $
The reconciliation of income taxes at the U.S. federal statutory tax rate to our effective tax rate was as follows:
(3,497)
(109)
667
393
3,588
(3,041)
(1,999)
Statutory provision rate
State, foreign and local taxes, net of federal income tax benefit
Change in state valuation allowance
General business credits generated
Foreign tax credits generated
Carryback of net operating loss rate differential
Section 162(m) and share-based compensation
Insurance premiums
Other
Effective tax rate
December 28, 2022 December 29, 2021 December 30, 2020
21 %
6
—
(1)
(1)
—
—
—
—
21 %
5
(1)
(2)
1
—
1
—
—
25 %
25 %
21 %
(11)
(1)
9
2
12
(11)
5
2
28 %
For 2022, the difference in the overall effective rate from the U.S. statutory rate was primarily due to state and foreign taxes,
partially offset by the generation of employment and foreign tax credits.
For 2021, the difference in the overall effective rate from the U.S. statutory rate was primarily due to state and foreign taxes
and the generation of employment credits. The 2021 rate was also impacted by an expense of $1.3 million from disallowed
compensation deductions. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was
signed into law as a response to the economic impacts of the COVID-19 pandemic. As a result of the CARES Act, during 2021
the Company carried back 2020’s net operating loss to years 2015 and forward, to obtain $1.5 million in federal income tax
refunds. See Note 16 for a discussion of other items related to the CARES Act.
For 2020, the difference in the overall effective rate from the U.S. statutory rate was primarily due to state and foreign taxes and
the generation of employment credits. The 2020 rate was also impacted by a $0.9 million benefit from the statutory rate differential
due to a net operating loss carryback to a prior year and an expense of $1.0 million from disallowed compensation deductions.
F - 30
The following table represents the approximate tax effect of each significant type of temporary difference that resulted in
deferred income tax assets or liabilities.
December 28, 2022 December 29, 2021
(In thousands)
Deferred tax assets:
Self-insurance accruals
Finance lease liabilities
Operating lease liabilities
Accrued exit costs
Interest rate swaps
Pension, other retirement and compensation plans
Deferred income
Other accruals
General business and foreign tax credit carryforwards - state and federal
Net operating loss carryforwards - state
Total deferred tax assets before valuation allowance
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Contract assets
Deferred finance costs
Operating lease right-of-use assets
Fixed assets
Interest rate swaps
Other accruals
Total deferred tax liabilities
Net deferred tax asset (liability)
$
2,094 $
1,230
33,028
21
—
11,239
4,396
918
2,387
1,157
56,470
(2,738)
53,732
(15,706)
(1,360)
(250)
(29,822)
(9,291)
(4,722)
—
(61,151)
$
(7,419) $
2,594
1,281
35,545
19
13,221
11,259
4,675
—
2,218
1,429
72,241
(2,192)
70,049
(14,874)
—
(313)
(32,198)
(10,134)
—
(1,028)
(58,547)
11,502
The Company’s state net operating loss tax asset of approximately $1.2 million includes $0.9 million related to Pennsylvania
and South Carolina.
Of the $2.7 million valuation allowance, $0.6 million relates to Pennsylvania and South Carolina net operating loss carryforwards,
$1.2 million relates to California enterprise zone credits and $0.9 million relates to foreign tax credit carryforwards, all of which
may never be utilized, prior to their expiration.
It is more likely than not that we will be able to utilize all of our existing temporary differences and most of our remaining state
tax net operating losses and state credit tax carryforwards, net of existing valuation allowance, prior to their expiration.
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits:
Balance, beginning of year
Decreases related to prior year tax positions
Balance, end of year
December 28, 2022 December 29, 2021
$
$
(In thousands)
1,047 $
(178)
869 $
1,047
—
1,047
There was no interest expense associated with unrecognized tax benefits for the years ended December 28, 2022 and
December 29, 2021.
F - 31
We file income tax returns in the U.S. federal jurisdictions and various state jurisdictions. With few exceptions, we are no
longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2019.
We remain subject to examination for U.S. federal taxes for 2019-2022, and in the following major state jurisdictions:
California (2017-2022), Florida (2019-2022) and Texas (2018-2022).
Note 16. Other CARES Act Provisions
The CARES Act allowed eligible employers to claim employee retention tax credits (“ERTC”) for qualified wages paid after
March 12, 2020 and before January 1, 2021. The ERTC was extended to June 30, 2021 under the passage of the Taxpayer
Certainty and Disaster Relief Act of 2020 (“ACT”) which was signed into law on December 27, 2020. We qualified for credits
under the provisions of the CARES Act for the entire period subsequent to March 12, 2020 through January 1, 2021 and for the
entire period subsequent to January 1, 2021 through June 30, 2021.
The total amount of credits recorded in 2021 related to the ERTC was $0.8 million, of which $0.3 million was included as a
component of costs of company restaurant sales and $0.5 million was included as a component of general and administrative
expenses in our Consolidated Statement of Operations for the year ended December 29, 2021.
The total amount of credits recorded in 2020 related to the ERTC was $2.6 million, of which $0.9 million was included as a
component of costs of company restaurant sales and $1.7 million was included as a component of general and administrative
expenses in our Consolidated Statement of Operations for the year ended December 30, 2020.
In addition, as allowed under the CARES Act, we deferred $3.1 million of our portion of FICA taxes in 2020 which were
paid in 2021.
Note 17. Net Income (Loss) Per Share
The amounts used for the basic and diluted net income (loss) per share calculations are summarized below:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands, except per share amounts)
Net income (loss)
$
74,712 $
78,073 $
(5,116)
Weighted average shares outstanding - basic
Effect of dilutive share-based compensation awards
Weighted average shares outstanding - diluted
Net income (loss) per share - basic
Net income (loss) per share - diluted
$
$
Anti-dilutive share-based compensation awards(1)
60,771
108
60,879
1.23 $
1.23 $
709
65,171
402
65,573
1.20 $
1.19 $
420
60,812
—
60,812
(0.08)
(0.08)
1,682
(1) For the year ended December 30, 2020, share-based compensation awards have been omitted from the calculations because they have an anti-
dilutive effect on loss per share.
Note 18. Shareholders’ Equity
Share Repurchases
Our credit facility permits the repurchase of Denny’s stock and the payment of cash dividends subject to certain limitations.
Our Board of Directors approves share repurchases of our common stock. Under these authorizations, we may, from time to time,
purchase shares in the open market (including pre-arranged stock trading plans in accordance with the guidelines specified in
Rule 10b5-1 under the Securities Exchange Act of 1934, as amended) or in privately negotiated transactions, subject to market
and business conditions. Currently, we are operating under a $250 million share repurchase authorization approved by the
Board of Directors in December 2019. During 2017, the Board approved a share repurchase programs for $200 million of our
common stock.
F - 32
During the quarter ended March 25, 2020, we suspended share repurchases as of February 27, 2020 and terminated our
previously approved Rule 10b5-1 Repurchase Plan effective March 16, 2020 in light of uncertain market conditions arising
from the COVID-19 pandemic. Prior to refinancing our old credit facility in the third quarter of 2021, share repurchase
restrictions were in place. As a result of refinancing our credit facility in the third quarter of 2021, we were able to resume
our share repurchase program.
During 2022, we repurchased a total of 6.3 million shares of our common stock for approximately $64.9 million. During 2021,
we repurchased a total of 2.0 million shares of our common stock for approximately $30.6 million. During 2020, we
repurchased a total of 1.7 million shares of our common stock for approximately $34.2 million, thus completing the 2017
repurchase program.
Repurchased shares as of December 28, 2022 and December 29, 2021, are included as treasury stock in our Consolidated
Balance Sheets and our Consolidated Statements of Shareholders’ Deficit.
Retirement of Treasury Stock
In the fourth quarter of fiscal 2020, the Board approved the retirement of 54.0 million shares of Treasury stock at a weighted
average share price of $10.26. As of year end December 30, 2020, no shares remained in treasury.
Issuance and Sale of Common Stock
On July 1, 2020, the Company entered into an underwriting agreement with Wells Fargo Securities, LLC, as representative
of the several underwriters named therein, for the issuance and sale by the Company of 8,000,000 shares of its common stock,
par value $0.01 per share, in an underwritten public offering at a price to the public of $9.15 per share. On July 6, 2020, the
Company received net proceeds of $69.6 million from the sale of shares, after deducting the underwriters' discounts and
commissions and offering expenses.
F - 33
Accumulated Other Comprehensive Loss
The components of the change in accumulated other comprehensive loss were as follows:
Balance as of December 25, 2019
Benefit obligation actuarial loss
Amortization of net loss (1)
Settlement loss recognized
Changes in the fair value of cash flow derivatives
Reclassification of cash flow derivatives to interest expense, net (2)
Reclassification of loss related to dedesignation of derivatives to
other nonoperating expense (income)(3)
Amortization of unrealized losses related to dedesignated
derivatives to interest expense, net (3)
Income tax benefit
Balance as of December 30, 2020
Benefit obligation actuarial loss
Amortization of net loss (1)
Changes in the fair value of cash flow derivatives
Reclassification of cash flow derivatives to interest expense, net (2)
Amortization of unrealized losses related to dedesignated
derivatives to interest expense, net (3)
Income tax expense
Balance as of December 29, 2021
Benefit obligation actuarial gain
Amortization of net loss (1)
Settlement loss recognized
Changes in the fair value of cash flow derivatives
Reclassification of cash flow derivatives to interest expense, net (2)
Amortization of unrealized losses related to dedesignated
derivatives to interest expense, net (3)
Income tax expense
Balance as of December 28, 2022
$
Pensions
Derivatives
(In thousands)
Accumulated Other
Comprehensive
Loss
$
(781) $
(448)
89
95
—
—
—
—
67
(33,179) $
—
—
—
(46,910)
3,160
7,354
783
9,365
(33,960)
(448)
89
95
(46,910)
3,160
7,354
783
9,432
$
(978) $
(59,427) $
(60,405)
(46)
159
—
—
—
(35)
—
—
4,275
4,023
166
(2,607)
$
(900) $
(53,570) $
261
123
74
—
—
—
(113)
(555) $
—
—
—
13,619
1,310
29
(3,530)
(42,142) $
(46)
159
4,275
4,023
166
(2,642)
(54,470)
261
123
74
13,619
1,310
29
(3,643)
(42,697)
(1) Before-tax amount that was reclassified from accumulated other comprehensive loss and included as a component of pension expense within
general and administrative expenses in our Consolidated Statements of Operations. See Note 12 for additional details.
(2) Amounts reclassified from accumulated other comprehensive loss into income represent payments made to the counterparty for the effective
portions of the interest rate swaps. These amounts are included as a component of interest expense, net in our Consolidated Statements of
Operations. We expect to receive payments from the counterparty and reclassify approximately $3.3 million from accumulated other
comprehensive loss related to our interest rate swaps during the next twelve months. See Note 10 for additional details.
(3) During the quarter ended June 24, 2020, we dedesignated the cash flow relationship and discontinued hedge accounting treatment for the 2018
Swaps. As a result, we reclassified approximately $7.4 million of losses from accumulated other comprehensive loss, net to other nonoperating
expense (income), net in our Consolidated Statements of Operations related to the portion of forecasted transaction no longer considered probable
of occurring. The remaining losses related to the 2018 Swaps will continue to be included in accumulated other comprehensive loss, net and will
be amortized as a component of interest expense, net in our Consolidated Statements of Operations over the remaining term of the 2018 Swaps.
We expect to amortize less than $0.3 million from accumulated other comprehensive loss related to our interest rate swaps during the next twelve
months. See Note 10 for additional details.
F - 34
Note 19. Commitments and Contingencies
Legal Proceedings
There are various claims and pending legal actions against or indirectly involving us, incidental to and arising out of the ordinary
course of the business. In the opinion of management, based upon information currently available, the ultimate liability with respect
to these proceedings and claims will not materially affect the Company’s consolidated results of operations or financial position.
Purchase Obligations
We have commitments related to company and franchised restaurants under purchase contracts for food and non-food products.
Many of these agreements do not obligate us to purchase any specific volumes and include provisions that would allow us to
cancel such agreements with appropriate notice. Our future purchase obligation payments due by period for both company and
franchised restaurants at December 28, 2022 consist of the following:
Less than 1 year
1-2 years
3-4 years
5 years and thereafter
Total
(In thousands)
216,740
—
—
—
216,740
$
$
For agreements with cancellation provisions, amounts included in the table above represent our estimate of purchase obligations
during the periods presented if we were to cancel these contracts with appropriate notice.
Note 20.
Supplemental Cash Flow Information
Income taxes paid, net
Interest paid
Noncash investing and financing activities:
Receipt of real estate receivable
Accrued purchase of property
Issuance of common stock, pursuant to share-based compensation
plans
Execution of finance leases
Treasury stock payable
Note 21. Segment Information
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
$
$
$
$
$
$
$
(In thousands)
9,296 $
12,939 $
9,942 $
14,159 $
6
15,889
3,000 $
283 $
9,547 $
537 $
542 $
— $
231 $
3,087 $
998 $
633 $
—
133
7,949
142
—
We manage our business by brand and as a result have identified two operating segments, Denny’s and Keke’s. In addition,
we have identified Denny’s as a reportable segment. The Denny’s reportable segment includes the results of all company and
franchised and licensed Denny’s restaurants. Our Keke’s operating segment, which includes the results of all company and
franchise restaurants, is included in Other.
The primary sources of revenues for all operating segments are the sale of food and beverages at our company restaurants and
the collection of royalties, advertising revenue, initial and other fees, including occupancy revenue, from restaurants operated
by our franchisees. We do not rely on any major customer as a source of sales and the customers and assets of all operating
segments are located predominantly in the United States. There are no material transactions between segments.
F - 35
Management’s measure of segment income is restaurant-level operating margin. The Company defines restaurant-level operating
margin as operating income excluding the following three items: general and administrative expenses, depreciation and
amortization, and operating (gains), losses and other charges, net. The Company excludes general and administrative expenses,
which include primarily non restaurant-level costs associated with support of company and franchised restaurants and other
activities at their corporate office. The Company excludes depreciation and amortization expense, substantially all of which is
related to company restaurant-level assets, because such expenses represent historical sunk costs which do not reflect current cash
outlays for the restaurants. The Company excludes operating (gains), losses and other charges, net, to provide a clearer perspective
of its ongoing operating performance and a more relevant comparison to prior period results. Restaurant-level operating margin is
used by our chief operating decision maker (“CODM”) to evaluate restaurant-level operating efficiency and performance.
The following tables present revenues by segment and a reconciliation of restaurant-level operating margin to operating income:
December 28, 2022 December 29, 2021 December 30, 2020
Fiscal Year Ended
Revenues by operating segment:
Denny’s
Other
Total operating revenue
Segment income:
Denny’s
Other
Total restaurant-level operating margin
General and administrative expenses
Depreciation and amortization
Operating (gains), losses and other charges, net
Total other operating expenses
Operating income
Interest expense, net
Other nonoperating income, net
Net income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Segment assets:
Denny’s
Other
Total assets
$
$
$
$
$
(In thousands)
447,687 $
398,174 $
288,605
8,742
—
—
456,429 $
398,174 $
288,605
138,555 $
142,102 $
3,089
—
141,644 $
142,102 $
67,173 $
68,686 $
14,862
(1,005)
81,030
60,614
13,769
(52,585)
99,430
24,718
15,446
(46,105)
38,027
104,075
15,148
(15,176)
104,103
26,030
79,688
—
79,688
55,040
16,161
1,808
73,009
6,679
17,965
(4,171)
(7,115)
(1,999)
(5,116)
$
74,712 $
78,073 $
Fiscal Year Ended
December 28, 2022 December 29, 2021
$
$
(In thousands)
394,051 $
104,284
498,335 $
422,852
12,675
435,527
F - 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2023
DENNY’S CORPORATION
BY: /s/ Robert P. Verostek
Robert P. Verostek
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Kelli F. Valade
(Kelli F. Valade)
/s/ Robert P. Verostek
(Robert P. Verostek)
/s/ Jay C. Gilmore
(Jay C. Gilmore)
/s/ Brenda J. Lauderback
(Brenda J. Lauderback)
/s/ Bernadette S. Aulestia
(Bernadette S. Aulestia)
/s/ Olu Beck
(Olu Beck)
/s/ Gregg R. Dedrick
(Gregg R. Dedrick)
/s/ José M. Gutiérrez
(José M. Gutiérrez)
/s/ John C. Miller
(John C. Miller)
/s/ Donald C. Robinson
(Donald C. Robinson)
/s/ Laysha Ward
(Laysha Ward)
/s/ F. Mark Wolfinger
(F. Mark Wolfinger)
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Date
February 27, 2023
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 27, 2023
Senior Vice President, Chief Accounting Officer and Corporate
Controller
(Principal Accounting Officer)
February 27, 2023
Director and Chair of the Board of Directors
February 27, 2023
Director
Director
Director
Director
Director
Director
Director
Director
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
Non-GAAP Reconciliations
The Company believes that, in addition to U.S. generally accepted accounting principles (GAAP) measures, certain non-GAAP financial
measures are appropriate indicators to assist in the evaluation of operating performance and liquidity on a period-to-period basis. The
Company uses Adjusted EBITDA, Adjusted Free Cash Flow, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share internally
as performance measures for planning purposes, including the preparation of annual operating budgets, and for compensation purposes,
including incentive compensation for certain employees. Adjusted EBITDA is also used in the calculation of financial covenant ratios in
accordance with the Company’s credit facility. Adjusted Free Cash Flow is also used as a non-GAAP liquidity measure by Management to
assess the Company’s ability to generate cash and plan for future operating and capital actions. Management believes that the
presentation of Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) Per Share and Adjusted Free Cash Flow provide
useful information to investors and analysts about the Company’s operating results, financial condition or cash flows. However, each of
these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income (loss), net income (loss),
net income (loss) per share, net cash provided by (used in) operating activities, or other financial performance and liquidity measures
prepared in accordance with GAAP.
$ in Millions
Net Income (Loss)
Provision for (Benefit from) Income Taxes
Operating (Gains) Losses and Other Charges, Net
Other Nonoperating Expense (Income), Net
Share-Based Compensation Expense
Deferred Compensation Plan Valuation Adjustments
Interest Expense, Net
Depreciation and Amortization
Cash Payments for Restructuring Charges and Exit Costs
Cash Payments for Share-Based Compensation
2018
$43.7
2019 20201 2021
$78.1
($5.1)
$117.4
2022
$74.7
8.6
2.6
0.6
6.0
(1.0)
20.7
27.0
(1.1)
(1.9)
31.8
(91.2)
(2.8)
6.7
2.6
18.5
19.8
(2.6)
(3.6)
(2.0)
1.8
(4.2)
7.9
1.6
18.0
16.2
(3.0)
(4.6)
26.0
(46.1)
(15.2)
13.6
2.1
15.1
15.4
(1.8)
(1.8)
24.7
(1.0)
(52.6)
11.4
(2.2)
13.8
14.9
(1.1)
(5.1)
Adjusted EBITDA
$105.3
$96.8
$26.6
$85.6
$77.5
Net Cash Provided By (Used In) Operating Activities
Capital Expenditures
Acquisition of Restaurants and Real Estate2
Cash Payments for Restructuring Charges and Exit Costs
Cash Payments for Share-Based Compensation
Deferred Compensation Plan Valuation Adjustments
Other Nonoperating Expense (Income), Net
Gains (Losses) on Investments
Gains (Losses) on Early Termination of Debt and Leases
Amortization of Deferred Financing Costs
Gains (Losses) and Amortization on Interest Rate Swap Derivatives, Net
Interest Expense, Net
Cash Interest Expense, Net3
Deferred Income Tax Expense
Decrease (Increase) in Tax Valuation Allowance
Provision for (Benefit from) Income Taxes
Income Taxes Paid, Net
Changes in Operating Assets and Liabilities, Excluding Acquisitions and Dispositions
Receivables
Inventories
Other Current Assets
Other Noncurrent Assets
Operating Lease Assets and Liabilities
Accounts Payable
Accrued Payroll
Accrued Taxes
Other Accrued Liabilities
Other Noncurrent Liabilities
$73.7
(22.0)
(10.4)
(1.1)
(1.9)
(1.0)
0.6
0.0
0.2
(0.6)
-
20.7
(19.6)
(6.2)
(0.1)
8.6
(3.3)
4.7
(0.1)
(0.9)
(0.0)
-
5.1
(2.2)
(0.3)
1.7
4.4
$43.3
(14.0)
(11.3)
(2.6)
(3.6)
2.6
(2.8)
0.2
0.0
(0.6)
-
18.5
(17.6)
(16.0)
2.9
31.8
(24.1)
2.0
(1.7)
4.1
4.6
0.6
5.2
3.8
2.0
4.1
(1.9)
($3.1)
(7.0)
-
(3.0)
(4.6)
1.6
(4.2)
0.1
(0.2)
(0.9)
2.2
18.0
(18.0)
(4.0)
3.0
(2.0)
(0.0)
(6.4)
(0.1)
3.9
1.8
(0.8)
10.7
2.8
0.8
5.5
5.5
$76.2
$39.5
(7.4)
(10.4)
(1.8)
(1.8)
2.1
(15.2)
(0.0)
0.5
(1.1)
12.6
15.1
(17.2)
(14.1)
5.0
26.0
(9.9)
(1.4)
3.9
(7.5)
1.9
1.5
(6.6)
(3.1)
0.3
(12.7)
5.5
(11.8)
(0.8)
(1.1)
(5.1)
(2.2)
(52.6)
(0.3)
0.0
(0.6)
55.0
13.8
(14.9)
(14.7)
(0.5)
24.7
(9.3)
5.9
0.5
1.1
2.1
0.7
(3.9)
2.9
0.1
5.9
6.5
Adjusted Free Cash Flow
$50.0
$29.8
$1.6
$40.8
$40.7
1 Includes 53 operating weeks.
2 For the year ended December 28, 2022, amount includes cash paid for the acquisition of a Denny’s franchise restaurant and excludes capital paid for the acquisition of Keke’s Breakfast Café.
3 Includes cash interest expense, net and cash payments of approximately $1.9 million, $3.3 million, and $1.8 million for dedesignated interest rate swap derivatives for the years ended December 30, 2020,
December 29, 2021 and December 28, 2022, respectively.
Non-GAAP Reconciliations (continued)
$ in millions (except per share amounts)
Adjusted EBITDA
Cash Interest Expense, Net2
Cash Paid for Income Taxes, Net
Cash Paid for Capital Expenditures, Real Estate and Restaurants3
Adjusted Free Cash Flow
Net Income (Loss)
(Gains) Losses on Interest Rate Swap Derivatives, Net
(Gains) Losses on Sale of Assets and Other, Net
Impairment Charges
Tax Effect4
2018
$105.3
(19.6)
(3.3)
(32.4)
2019 20201 2021
$85.6
$26.6
$96.8
2022
$77.5
(17.6)
(24.1)
(25.3)
(18.0)
(0.0)
(7.0)
(17.2)
(9.9)
(17.7)
(14.9)
(9.3)
(12.6)
$50.0
$29.8
$1.6
$40.8
$40.7
$43.7
$117.4
($5.1)
-
(0.5)
1.6
(0.2)
-
(93.6)
-
24.1
(2.2)
(4.7)
4.1
0.7
$78.1
(12.6)
(47.8)
0.4
15.0
$74.7
(55.0)
(3.4)
1.0
14.3
Adjusted Net Income (Loss)
$44.6
$47.9
($7.2)
$33.1
$31.6
Diluted Weighted Average Shares Outstanding (000's)
65,562
61,833
60,812
65,573
60,879
Diluted Net Income (Loss) per Share
Adjustments per Share
Adjusted Net Income (Loss) per Share
$0.67
$1.90
($0.08)
0.01
(1.13)
(0.04)
$1.19
(0.69)
$1.23
(0.71)
$0.68
$0.77
($0.12)
$0.50
$0.52
1Includes 53 operating weeks.
2 Includes cash interest expense, net and cash payments of approximately $1.9 million, $3.3 million, and $1.8 million for dedesignated interest rate swap derivatives for the years ended
December 30, 2020, December 29, 2021 and December 28, 2022, respectively.
3 For the year ended December 28, 2022, amount includes cash paid for the acquisition of a Denny’s franchise restaurant and excludes capital paid for the acquisition of Keke’s Breakfast Café.
4 Tax adjustment for full year 2018 uses a full year effective tax rate of 16.4%. Tax adjustments for the gains on sales of assets and other, net in 2019 are calculated using an effective rate of 25.7%.
Tax adjustments for full year 2020, 2021 and 2022, reflect an effective tax rate of 25.6%, 25.0%, and 24.9%, respectively.
Denny’s Leadership Team
Kelli F. Valade, Chief Executive Officer • John W. Dillon, President, Denny’s, Inc. • David P. Schmidt, President, Keke’s, Inc. • Stephen C. Dunn, Executive
Vice President, Chief Global Development Officer • Michael L. Furlow, Executive Vice President, Chief Information Officer • Gail Sharps Myers,
Executive Vice President, Chief Legal Officer, Chief People Officer and Secretary • Robert P. Verostek, Executive Vice President, Chief Financial Officer
• Jay C. Gilmore, Senior Vice President, Chief Accounting Officer and Corporate Controller
Denny’s Board of Directors
Brenda J. Lauderback, Board Chair, Retired; Former President of Wholesale and Retail Group of Nine West Group, Inc • Bernadette S. Aulestia, Former
Chief Revenue & Growth Officer, Callisto Media • Olu Beck, Founder and Chief Executive Officer, The Beck Group NJ • Gregg R. Dedrick, Co-Founder,
David Novak Leadership • José M. Gutiérrez, Retired; President and Chief Executive Officer, AT&T Southwestern Bell • John C. Miller, Retired; Chief
Executive Officer, Denny’s Corporation • Donald C. Robinson, Retired; President, Potcake Holdings, LLC • Kelli F. Valade, Chief Executive Officer,
Denny’s Corporation • Laysha Ward, Executive Vice President and Chief External Engagement Officer, Target Corporation • F. Mark Wolfinger,
Retired; President, Denny’s Corporation
Shareholder Information
Corporate Office: Denny’s Corporation | 203 East Main Street | Spartanburg, SC 29319 | (864) 597-8000
Independent Auditors: KPMG LLP | Greenville, SC
Stock Listing Information: Denny’s Corporation common stock is listed on the NASDAQ Capital Market® under the symbol DENN.
Transfer Agent for Common Stock: Continental Stock Transfer & Trust Co. | 1 State Street, New York, NY 10004 | (212) 509-4000 | (800) 509-5586
For Information regarding change of address or other matters concerning your shareholder account, please contact the transfer agent.
For Financial Information: Call (877) 784-7167 | Email ir@dennys.com | Or write to: Investor Relations | Denny’s Corporation | 203 East Main Street,
Spartanburg, SC 29319. Other investor information such as news releases, SEC filings and stock quotes may be accessed from Denny’s investor
relations website at: investor.dennys.com.
Annual Meeting: Wednesday, May 17, 2023
© 2023 DFO, LLC. Printed in the U.S.A.
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