EDGAR 10-K Filing

Company CIK: 852772
Filing Year: 2023
Filename: 852772_10-K_2023_0000852772-23-000032.json

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ITEM 1. BUSINESS
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 74 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.
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.
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 84 38.4 % 84 5.5 %
Two to five 73 33.3 % 225 14.6 %
Six to ten 27 12.3 % 219 14.3 %
Eleven to fifteen 14 6.4 % 172 11.2 %
Sixteen to thirty 10 4.6 % 234 15.2 %
Thirty-one and over 11 5.0 % 602 39.2 %
Total 219 100.0 % 1,536 100.0 %
Keke’s Development
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
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.
Brand Protection, Quality & Regulatory Compliance
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.
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
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.
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.
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
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.

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ITEM 1A. RISK FACTORS
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.
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:
•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:
•consumer preferences, including nutritional and dietary concerns;
•consumer 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.
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:
•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.
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;
•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;
•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.
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.
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.
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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
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.
The number and location of our restaurants as of December 28, 2022 are presented below:
United States - Denny’s Company Franchised / Licensed Total
Alabama - 7 7
Alaska - 1 1
Arizona 1 84 85
Arkansas - 10 10
California 22 343 365
Colorado - 19 19
Connecticut - 5 5
Delaware - 1 1
District of Columbia - 2 2
Florida 9 115 124
Georgia - 12 12
Hawaii 2 4 6
Idaho - 10 10
Illinois - 47 47
Indiana - 34 34
Iowa - 3 3
Kansas - 5 5
Kentucky - 11 11
Louisiana - 6 6
Maine - 3 3
Maryland - 24 24
Massachusetts 2 4 6
Michigan - 14 14
Minnesota - 17 17
Mississippi - 4 4
Missouri - 30 30
Montana - 3 3
Nebraska - 3 3
Nevada 7 32 39
New Hampshire 2 - 2
New Jersey - 7 7
New Mexico - 29 29
New York - 41 41
North Carolina - 21 21
North Dakota - 3 3
Ohio - 35 35
Oklahoma - 10 10
Oregon - 22 22
Pennsylvania - 35 35
Rhode Island - 3 3
South Carolina 3 8 11
South Dakota - 1 1
Tennessee - 5 5
Texas 14 191 205
Utah - 25 25
Vermont 2 - 2
Virginia 2 19 21
Washington - 41 41
West Virginia - 4 4
Wisconsin - 22 22
Wyoming - 4 4
Total Domestic - Denny’s 66 1,379 1,445
International - Denny’s Company Franchised / Licensed Total
Canada - 84 84
Costa Rica - 3 3
Curacao N.V. - 1 1
El Salvador - 2 2
Guam - 2 2
Guatemala - 4 4
Honduras - 6 6
Indonesia - 2 2
Mexico - 15 15
New Zealand - 7 7
Philippines - 10 10
Puerto Rico - 15 15
United Arab Emirates - 5 5
United Kingdom - 1 1
Total International - Denny’s - 157 157
Total Domestic - Denny’s 66 1,379 1,445
Total - Denny’s 66 1,536 1,602
United States - Keke’s Company Franchised / Licensed Total
Florida 8 46 54
Total Domestic - Keke’s 8 46 54
Total 74 1,582 1,656
Of our total 1,656 restaurants, our interest in restaurant properties consists of the following:
Company Restaurants Franchised Restaurants Total
Owned properties 16 61 77
Leased properties 58 153 211
74 214 288
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.

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ITEM 3. LEGAL PROCEEDINGS
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.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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
Total Number of Shares Purchased
Average Price Paid Per Share (1)
Total Number of Shares Purchased as Part of Publicly Announced Programs (2)
Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs (2)
(In thousands, except per share amounts)
September 29, 2022 - October 26, 2022 262 $ 9.85 262 $ 157,702
October 27, 2022 - November 23, 2022 51 11.53 51 $ 157,115
November 24, 2022 - December 28, 2022 460 9.96 460 $ 152,527
Total 773 $ 10.45 773
(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.
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
Russell 2000®
Index (1) Current Peer Group (2) Former Peer Group (3) Denny’s Corporation
December 27, 2017 $ 100.00 $ 100.00 $ 100.00 $ 100.00
December 26, 2018 $ 87.26 $ 105.53 $ 105.41 $ 121.34
December 25, 2019 $ 111.72 $ 111.48 $ 111.65 $ 151.12
December 30, 2020 $ 133.69 $ 130.52 $ 130.40 $ 105.30
December 29, 2021 $ 153.33 $ 136.60 $ 136.25 $ 117.16
December 28, 2022 $ 119.04 $ 116.55 $ 116.81 $ 67.16
(1)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.
(2)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).
(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).

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Reserved

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
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.
Statements of Operations
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(Dollars in thousands)
Revenue:
Company restaurant sales $ 199,753 43.8 % $ 175,017 44.0 % $ 118,160 40.9 %
Franchise and license revenue 256,676 56.2 % 223,157 56.0 % 170,445 59.1 %
Total operating revenue 456,429 100.0 % 398,174 100.0 % 288,605 100.0 %
Costs of company restaurant sales, excluding depreciation and amortization (a):
Product costs 53,617 26.8 % 42,982 24.6 % 29,816 25.2 %
Payroll and benefits 76,412 38.3 % 65,337 37.3 % 51,684 43.7 %
Occupancy 15,154 7.6 % 11,662 6.7 % 11,241 9.5 %
Other operating expenses 34,275 17.2 % 26,951 15.4 % 21,828 18.5 %
Total costs of company restaurant sales, excluding depreciation and amortization 179,458 89.8 % 146,932 84.0 % 114,569 97.0 %
Costs of franchise and license revenue (a) 135,327 52.7 % 109,140 48.9 % 94,348 55.4 %
General and administrative expenses 67,173 14.7 % 68,686 17.3 % 55,040 19.1 %
Depreciation and amortization 14,862 3.3 % 15,446 3.9 % 16,161 5.6 %
Operating (gains), losses and other charges, net (1,005) (0.2) % (46,105) (11.6) % 1,808 0.6 %
Total operating costs and expenses, net 395,815 86.7 % 294,099 73.9 % 281,926 97.7 %
Operating income 60,614 13.3 % 104,075 26.1 % 6,679 2.3 %
Interest expense, net 13,769 3.0 % 15,148 3.8 % 17,965 6.2 %
Other nonoperating income, net (52,585) (11.5) % (15,176) (3.8) % (4,171) (1.4) %
Net income (loss) before income taxes 99,430 21.8 % 104,103 26.1 % (7,115) (2.5) %
Provision for (benefit from) income taxes 24,718 5.4 % 26,030 6.5 % (1,999) (0.7) %
Net income (loss) $ 74,712 16.4 % $ 78,073 19.6 % $ (5,116) (1.8) %
(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.
Statistical Data
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(Dollars in thousands)
Denny’s
Company average unit sales $2,985 $2,709 $1,812
Franchise average unit sales $1,729 $1,597 $1,181
Company equivalent units (a) 65 65 65
Franchise equivalent units (a) 1,561 1,581 1,614
Company same-store sales increase (decrease) vs. prior year (b)(c) 10.4% 55.3% (36.7)%
Domestic franchised same-store sales increase (decrease) vs. prior year (b)(c) 6.0% 40.1% (30.9)%
Keke’s (d)(e)
Company average unit sales $772 $- $-
Franchise average unit sales $802 $- $-
Company equivalent units (a) 4 - -
Franchise equivalent units (a) 20 - -
(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
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
Denny’s
Company restaurants, beginning of period 65 65 68
Units acquired from franchisees 1 - -
Units closed - - (3)
End of period 66 65 65
Franchised and licensed restaurants, beginning of period
1,575 1,585 1,635
Units opened 28 20 20
Units acquired by Company (1) - -
Units closed (66) (30) (70)
End of period 1,536 1,575 1,585
Total restaurants, end of period 1,602 1,640 1,650
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
Keke’s
Company restaurants, beginning of period - - -
Units acquired 8 - -
End of period 8 - -
Franchised and licensed restaurants, beginning of period
- - -
Units opened 2 - -
Units acquired 44 - -
End of period 46 - -
Total restaurants, end of period 54 - -
Company Restaurant Operations
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:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(Dollars in thousands)
Utilities $ 7,273 3.6 % $ 5,814 3.3 % $ 5,148 4.4 %
Repairs and maintenance 3,874 1.9 % 2,743 1.6 % 2,608 2.2 %
Marketing 5,294 2.7 % 4,594 2.6 % 3,904 3.3 %
Legal settlements 4,224 2.1 % 2,134 1.2 % 506 0.4 %
Other direct costs 13,610 6.8 % 11,666 6.7 % 9,662 8.2 %
Other operating expenses $ 34,275 17.2 % $ 26,951 15.4 % $ 21,828 18.5 %
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:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(Dollars in thousands)
Royalties $ 113,891 44.4 % $ 103,425 46.4 % $ 67,501 39.6 %
Advertising revenue 75,926 29.6 % 69,957 31.3 % 53,745 31.5 %
Initial and other fees 28,262 11.0 % 8,009 3.6 % 7,332 4.3 %
Occupancy revenue 38,597 15.0 % 41,766 18.7 % 41,867 24.6 %
Franchise and license revenue $ 256,676 100.0 % $ 223,157 100.0 % $ 170,445 100.0 %
Advertising costs $ 75,926 29.6 % $ 69,957 31.3 % $ 53,745 31.5 %
Occupancy costs 24,090 9.4 % 26,237 11.8 % 26,732 15.7 %
Other direct costs 35,311 13.8 % 12,946 5.8 % 13,871 8.1 %
Costs of franchise and license revenue $ 135,327 52.7 % $ 109,140 48.9 % $ 94,348 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. 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:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands)
Corporate administrative expenses $ 52,115 $ 44,367 $ 41,135
Share-based compensation 11,400 13,602 7,948
Incentive compensation 5,811 8,628 4,351
Deferred compensation valuation adjustments (2,153) 2,089 1,606
Total general and administrative expenses $ 67,173 $ 68,686 $ 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:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands)
Depreciation of property and equipment $ 11,118 $ 11,441 $ 11,284
Amortization of finance right-of-use assets 1,704 1,895 1,870
Amortization of intangible and other assets 2,040 2,110 3,007
Total depreciation and amortization expense $ 14,862 $ 15,446 $ 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.
Operating (gains), losses and other charges, net consisted of the following:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands)
Gains on sales of assets and other, net $ (3,378) $ (47,822) $ (4,678)
Restructuring charges and exit costs 1,410 1,275 2,403
Impairment charges 963 442 4,083
Operating (gains), losses and other charges, net $ (1,005) $ (46,105) $ 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:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands)
Exit costs $ 86 $ 323 $ 204
Severance and other restructuring charges 1,324 952 2,199
Total restructuring and exit costs $ 1,410 $ 1,275 $ 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:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands)
Interest on credit facilities $ 8,478 $ 5,478 $ 8,658
Interest on interest rate swaps 1,310 4,023 3,160
Interest on finance lease liabilities 2,350 2,960 3,129
Letters of credit and other fees 1,053 1,438 1,259
Interest income (87) (25) (96)
Total cash interest 13,104 13,874 16,110
Amortization of deferred financing costs 634 1,105 875
Amortization of interest rate swap losses 29 167 783
Interest accretion on other liabilities 2 2 197
Total interest expense, net $ 13,769 $ 15,148 $ 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.
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:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands)
Net cash provided by (used in) operating activities $ 39,452 $ 76,173 $ (3,137)
Net cash provided by (used in) investing activities (86,596) 29,014 4,651
Net cash provided by (used in) financing activities 20,043 (78,455) (994)
Increase (decrease) in cash and cash equivalents
$ (27,101) $ 26,732 $ 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.
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:
Fiscal Year Ended
December 28, 2022 December 29, 2021 December 30, 2020
(In thousands)
Facilities $ 4,596 $ 3,206 $ 4,107
New construction 91 - 23
Remodeling 3,846 1,477 992
Information technology 2,638 1,410 1,386
Other 673 1,262 454
Capital expenditures (excluding acquisitions) $ 11,844 $ 7,355 $ 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.
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:
Payments Due by Period
Total Less than 1 Year 1-2 Years 3-4 Years 5 Years and Thereafter
(In thousands)
Long-term debt (a) $ 261,500 $ - $ - $ 261,500 $ -
Finance lease obligations (b)(c) 26,013 3,768 5,958 4,773 11,514
Operating lease obligations (b) 182,569 23,031 41,805 36,952 80,781
Interest obligations (c) 50,888 13,879 27,757 9,252 -
Defined benefit plan obligations (d) 1,761 972 265 210 314
Purchase obligations (e) 216,740 216,740 - - -
Unrecognized tax benefits (f) 869 - - - -
Total $ 740,340 $ 258,390 $ 75,785 $ 312,687 $ 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 and timing of expected payments.
(c)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.
(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.
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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 $ 120,000 $ 4,904 2.44 %
October 1, 2015 March 29, 2018 March 31, 2026 $ 50,000 $ 2,392 2.46 %
Dedesignated swaps
February 15, 2018 March 31, 2020 December 31, 2033 $ 130,000 (1) $ 12,751 3.19 %
Total $ 300,000 $ 20,047
(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.
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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements which appears on page herein.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
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.
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.
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.
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

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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.”

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ITEM 11. EXECUTIVE COMPENSATION
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).

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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 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
Equity compensation plans approved by security holders
4,374,772 (1) $ - 2,985,996 (2)
Equity compensation plans not approved by security holders
- - 704,166 (3)
Total 4,374,772 $ - 3,690,162
(1)Includes shares issuable in connection with our outstanding performance share awards and restricted stock units awards.
(2)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.
(3)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).

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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).

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements: See the Index to Consolidated Financial Statements which appears on page 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.
Exhibit No. Description
*2.1 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).
*2.2 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).
*3.1 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).
*3.2 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).
*4.1 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).
+*10.1 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).
+*10.2 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).
+*10.3 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).
*10.4 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).
*10.5 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).
+*10.6 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).
+*10.7 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).
+*10.8 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).
+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 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).
+*10.12 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 Subsidiaries of Denny’s Corporation.
23.1 Consent of KPMG LLP.
31.1 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.
31.2 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.
32.1 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.