UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-K

For the transition period from __________ to __________

 Commission file number 0-18051

 DENNY'SDENNY’S CORPORATION

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”  “accelerated filer,” “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.

As of February 21, 2018, 64,271,40525, 2021, 64,144,845 shares of the registrant’s common stock, $.01 par value per share, were outstanding.

TABLE OF CONTENTS

 

The forward-looking statements included in the “Business,” “Risk Factors,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk” sections and elsewhere herein, which reflect our best judgment based on factors currently known, involve risks and uncertainties. Words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “hope,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements speak only as to the date thereof. Except as may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors including, but not limited to, the factors discussed in such sections and, in particular, those set forth in the cautionary statements contained in “Risk Factors.” The forward-looking information we have provided in this Form 10-K pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. 

PART I

 

Description of Business

 

Denny’s is known as America'sAmerica’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 products through our compelling limited time only offerings, delivered in a warm, friendly “come as you are” atmosphere. Denny'sDenny’s has been serving guests for nearlyover 65 years and is best known for its breakfast fare, which is available around the clock. 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. In addition to our breakfast-all-day items, Denny'sDenny’s offers a wide selection of lunch and dinner items including burgers, sandwiches, salads and skillet entrées, along with an assortment of beverages, appetizers and desserts.

References to “Denny's,“Denny’s,” the “Company,” “we,” “us,” and “our” in this Form 10-K are references to Denny'sDenny’s Corporation and its subsidiaries. Financial information about our operations, including our revenues and net income (loss) for the fiscal years ended

In 2020 and continuing into 2021, the global crisis resulting from the spread of this report. Approximately 95%coronavirus (“COVID-19”), along with government and consumer responses to the pandemic, had, and continue to have, a substantial impact on our restaurant operations. During 2020, many of our revenues are generatedcompany and franchised and licensed restaurants were temporarily closed and most of the restaurants that remained open had limited operations. This has continued into 2021. Our operating results substantially alldepend upon the sales volumes, restaurant profitability, and financial stability of our assets are located incompany and franchised and licensed restaurants.

We cannot currently estimate the United States.duration or future negative financial impact of the COVID-19 pandemic on our business; however, we expect that the COVID-19 pandemic will continue to impact our results of operations for at least the balance of 2021. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information relating to the impact of the COVID-19 pandemic on our business and financial results.

RestaurantFranchising 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. TraditionalOur current traditional twenty-year Denny’s franchise agreements have an initial fee of up to $40,000$30,000 and a royalty payment of up to 4.5% of gross sales. Additionally, our franchisees are required to contribute up to 3%3.25% of gross sales for marketing and may make additional advertising contributions as part of a local marketing co-operative. Approximately 75% of our franchised restaurants were operating under this traditional agreement as of December 30, 2020. Franchise 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 4.14%4.30% during 2017.2020 before considering any relief provided during the COVID-19 pandemic.

We work closely with our franchisees to plan and execute many aspects of the business. The Denny'sDenny’s Franchisee Association (“DFA”) was created to promote communication among our franchisees and between the Company and our franchise community. DFAMembers of the DFA’s board members 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.

The success of any restaurant is significantly influenced by its location. Our development team works closely with franchisees and real estate brokers to identify sites whichthat meet specific standards. Sites are evaluated on the basis of a variety of factors, including but not limited to:

Domestic Development

 

To accelerate the growth of the brand in certainspecific under-penetrated markets, we offer certain incentive programs. These programs provide significant incentives for franchisees to develop locations in areas where Denny's does not have the topDenny’s has opportunities to grow market share. The benefits to franchisees can include reduced franchise fees, lower royalties and advertising contributions for a limited time period and credits towardstoward certain development services, such as training fees.

In recent years,addition to these incentive programs, we have opened restaurant locations within travel centers, primarily with Pilotincreased our domestic development commitments by over 75 restaurants through our refranchising and Pilot Flying J Travel Centers. Additionally, we have opened nontraditional locations, which are primarily on university campuses. Asdevelopment strategy implemented during 2018 and 2019. These commitments were attached to the sale of December 27, 2017, there were approximately 155 travel center113 company restaurants during 2018 and nontraditional locations.2019.

 

Through our variousIn addition to the development efforts,agreements signed for domestic restaurants, as of December 27, 2017,30, 2020, we havehad the potential to develop approximately 60 domestic109 international franchised restaurants with our current development partners in our development pipeline.various locations including Canada, Central America, Indonesia, Mexico, the Philippines, the United Arab Emirates and the United Kingdom. The majority of these restaurants are expected to open over the next fiveten years. During 2020, we opened eight international franchised locations, including four in Canada, two in Mexico, and one each in Indonesia and Central America.

Franchise Focused Business Model

Through our development and refranchising efforts during 2018 and 2019, we have achieved a restaurant portfolio mix of 90%96% franchised and 10%4% company operated. Therestaurants. We expect the majority of our future restaurant openings and growth of the brand willto come primarily from the development of franchised restaurants. The following table summarizes the changes in the number of company restaurants and franchised and licensed restaurants during the past five years (excluding relocations):

 

 

 

We believe that the consistent and reliable execution of basic restaurant operations in each Denny’s restaurant, whether it is company or franchised, is critical to our success. To meet and exceed our guests’ expectations, we require both our company and our franchised restaurants to maintain the same strict brand standards. These standards relate to the preparation and efficient serving of quality food and the maintenance, repair and cleanliness of each restaurant.

We devote significant effort to ensuring all restaurants offer quality food served by friendly, knowledgeable and attentive employees in a clean and well-maintained restaurant.environment. The staff for a typical restaurant consists of one General Manager, two or three Restaurant Managers and approximately 45 hourly employees. The Chief Operating Officer, along with the three Sr. Directors of Franchise Operations, the VP of Training, the VP of Operations Services and the Sr. Director of Company Operations, establish the strategic direction and key initiatives for the Operations Teams. We seek to ensure that our company restaurants meet our high standards through a network of Directors of Company Operations, Company District Managers and restaurant level managers, alloverseen by our Senior Director of whom spend the majority of their time in the restaurants.Company Operations. A network of Regional Directors of Franchise Operations and Franchise Business Coaches provide oversight of our franchised restaurants to ensure compliance with brand standards, promote operational excellence and provide general support to our franchisees. The duties of the Directors of Operations, District Managers and Franchise Business Coaches include regular restaurant visits and inspections, as well as frequent interactions with our franchisees, employees and guests, which ensure the ongoing adherence to our standards of quality, service, cleanliness, value and hospitality.

A principal feature of our restaurant operations is the consistent focus on improving operations at the restaurant level. Our Pride Review Program, executed by the Franchise Business Coaches and District Managers, is designed to continuously improve the execution of our brand standards and shift management at each company and franchised restaurant. In addition, Denny’s maintains training programs for hourly employees and restaurant management. Hourly employee training programs (including online learning) are position-specific and focus on skills and tasks necessary to successfully fulfill the responsibilities assigned to them, while continually enhancing guest satisfaction. Denny'sDenny’s Manager In Training (“MIT”) program provides managers with the knowledge and leadership skills needed to successfully operate a Denny'sDenny’s restaurant. The MIT program is required for all new managers of company restaurants and is also available to Denny'sDenny’s franchisees to train their managers. 

Product Development and Marketing

Menu Offerings

Product Development

 

Product Sources and Availability

 

Our Purchasing department administers programs for the procurement of food and non-food products. Our franchisees also purchase food and non-food products directly from our vendors under these programs. Our centralized purchasing program is designed to ensure uniform product quality as well as to minimize food, beverage and supply costs. The size of our brand provides significant purchasing power, which often enables us to obtain products at favorable prices from nationally recognized suppliers.

 

While our Purchasing department negotiates contracts for nearly all products used in our restaurants, the majority of such products are purchased and distributed through Meadowbrook Meat Company (“MBM”), a wholly owned subsidiary of McLane Company, Inc., (“McLane”) under a long-term distribution contract. MBMMcLane distributes restaurant products and supplies to the Denny’s system from approximately 200 vendors, representing approximately 90% of our restaurant product and supply purchases. We believe that satisfactory alternative sources of supplysupplies 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

 

 

Denny’s will only serve our guests food that is safe, wholesome and meets our quality standards. Our systems, from “farm to fork,” are based on Hazard Analysis and Critical Control Points (“HACCP”), whereby we prevent, eliminate or reduce hazards to a safe level to protect the healthThe mission of our employees and guests. To ensure this basic expectationInformation Technology department is to align our technology strategy in support of our guests, Denny’sbusiness strategies. We focus on leveraging technology to drive efficiencies, simplify and standardize operations, and streamline the guest experience. We also has risk-baseddeliver solutions that support financial and regulatory needs in addition to necessary business improvements. 

We rely on information technology systems in place to validate only approved vendorsall aspects of our operations. At the restaurant level, systems include point-of-sale platforms along with systems and distributors which meettools for kitchen operations, labor scheduling, inventory management, cash management 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 Denny’s Brand Standards.

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 not met, a remediation process is immediately initiated. 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 Food Safety/HACCP program uses nationally recognized food safety training coursesinformation technology systems have been designed to protect against unauthorized access and American National Standards Institute accredited certification programs. 

Seasonality

 

Restaurant sales are generally higher in the second and third calendar quarters (April through September) than in the firstfourth and fourthfirst 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 “Denny's®“Denny’s®,”, “Grand Slam®,”, and “$2 $4 $6 $8 Value Menu®.” and “Fit Fare®”. 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, andmarks. 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.

 

Denny’s 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.

 

 

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 avian flu)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, utilitiesutility expenses and unfavorable weather. See “Risk Factors” for additional information.

 

Government Regulations

 

We and our franchisees are subject to local, state, federal 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.standards, as well as laws and regulations relating to sanitation, 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.relationship, as well as judicial and administrative interpretations of such laws.

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.

See “Risk Factors” for a discussion of risks related to governmental regulation of our business.

Information about our Executive Officers of the Registrant

The following table sets forth information with respect to each executive officer of both Denny’s Corporation and Denny'sDenny’s Inc.:

Mr. Bode has been Executive Vice President and Chief Operating Officer since February 2021. He previously served as Senior Vice President and Chief Operating Officer since October 2014. He previously served2014, as Senior Vice President, Operations from January 2013 to October 2014, as Divisional Vice President, Franchise Operations from January 2012 to January 2013 and as Vice President, Operations Initiatives from March 2011 to January 2012.

Mr. Dillon has been Executive Vice President and Chief Brand Officer since February 2020. He previously served as Senior Vice President and Chief Brand Officer from December 2018 to February 2020, as Senior Vice President and Chief Marketing Officer sincefrom October 2014. He previously served2014 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. Furlow has been Senior Vice President and Chief Information Officer since April 2017. 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.

Ms. Van PeltSharps Myers has been Executive Vice President, Chief Legal Officer and Chief People Officer since February 2021. She previously served as Senior Vice President, General Counsel and Secretary since September 2020 and as Senior Vice President and General Counsel from June 2020 to September 2020. 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).

Mr. Verostek has been Executive Vice President and Chief Financial Officer since February 2021. He previously served as Senior Vice President and Chief PeopleFinancial Officer since October 2014. She previously servedFebruary 2020, as Vice President, Human Resources from October 2008 to October 2014.

Mr. Wolfinger has been President since February 2020. He previously served as Executive Vice President and Chief Administrative Officer sincefrom April 2008 andto February 2020, as Chief Financial Officer sincefrom September 2005. He previously served2005 to February 2020, and as Executive Vice President, Growth Initiatives from October 2006 to April 2008.

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, and key financial and accounting personnel as well asand 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.

 

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.

condition. In 2020, the COVID-19 pandemic significantly impacted the economy in general, economic conditionsand our business specifically,

and it could adverselycontinue to negatively affect our business in a number of ways. These effects could include, but are not limited to:

adversely impacts our business, results of operations, liquidity and financial condition is highly uncertain and will depend on

In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the COVID-19 pandemic on us or our franchisees, suppliers, third-party service providers, and/or customers. During 2020, many state and local governments started to ease certain restrictions on our Company operated and franchised restaurants only to later reinstitute them due to a rise in the number of people contracting and being treated for COVID-19. As dining atroom restrictions ease, we expect to incur increased cleaning and supply costs and labor inefficiencies as we adjust to improved sales volumes and enhanced health and safety protocols. We may not be able to attract customers to our reopened restaurants such as ours, are affected by many factors including:

The restaurant business is highly competitive, and if we are unable to compete effectively, our business will be adversely affected.

 

TheOur returns and profitability of our restaurants may be negatively impacted by a number of factors, including those described below.

 

Food service businesses and the performance of our individualcompany and franchised restaurants may be materially and adversely affected by factors such as:

 

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 our 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 such as:

 

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 brand could be harmed, which in turn could negatively impact our business. Additional risks include include:

If a significant number of franchisees become financially distressed, it could harm our operating results. For 2017,2020, our ten largest franchisees accounted for 31%approximately 39% of our total franchise and license revenue. The balance of our franchise revenue iswas derived from the remaining 248217 franchisees.

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.growth and operating results.

The development of new restaurants may be adversely affected by risks such as:

The locations where we haveof company and franchised restaurants may cease to be attractive as demographic patterns change.

 

The success of our ownedcompany and franchised restaurants is significantly influenced by location. Current locations may not continue to be attractive as demographic patterns change. It is possible that the neighborhood or economic conditions where our restaurants are located could decline in the future, potentially resulting in reduced sales at those locations.

Our expansion into international markets may present increased risks due to lower customer awareness of our brand, our unfamiliarity with those markets and other factors.

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.

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, 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.

Numerous government regulations impact our business, and profitability.our failure to comply with them could adversely affect our business.

 

A substantial number of our employees are paid the minimum wage. Accordingly, increases in the minimum wage or reportsdecreases 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 food-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 water-borne illness,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.

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 safety issues, food contamination or tampering, employee hygiene and cleanliness failures, improper employee conduct, or presence of communicable disease at ourto restaurants or suppliers could leadfinancial functions such as vendor payment or employee payroll. We have disaster recovery and business continuity plans that are designed to product liability or other claims. Such incidents or reports could negatively affect our brandanticipate 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 businessmitigate such failures, but it is possible that significant capital investment could be severely affected.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 domesticbusiness. Some third-party business processes we utilize include information technology, payment processing, gift card authorization and internationalprocessing, benefits, 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 doadequate security against data breaches. However, the failure of our franchisees,suppliers to provide quality ingredients and tomaintain adequate controls or comply with applicable lawsour expectations 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 inhave a disruption in our supply chain and negatively impact our brand andmaterial adverse effect on our business, financial condition and profitability. Our inability to manage an event such as a product recall or product related litigation could also cause our results to suffer.

 

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’sCompany’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.

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. Changes to existing accounting rules or the questioning of current accounting practices may adversely affect our reportingreported financial results. 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.

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. 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.

 

None.

 

 

 

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 4542 years, including optional renewal periods. In addition to the restaurant properties, we own an 18-story, 187,000 square foot office building in Spartanburg, South Carolina, which serves as our corporate headquarters. Our corporate offices currently occupy 17 floors of the building, with a portion of the building leased to others.

 

See Note 109 to our Consolidated Financial Statements for information concerning encumbrances on substantially all of our properties.

 

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'sCompany’s consolidated results of operations or financial position. We record legal settlement costs as other operating expenses in our Consolidated Statements of Income as those costs are incurred.

 

 

Not applicable.

 

PART II

 

 

Market Information

 

 

Dividends and Share Repurchases

 

OurWe suspended share repurchases as of February 27, 2020 and terminated our previously approved Rule 10b5-1 Repurchase Plan effective March 16, 2020 in light of uncertain market conditions arising from the COVID-19 pandemic. Under our amended credit facility allowsagreement, we are prohibited, until the date of delivery of our financial statements for the payment of cashfiscal quarter ending September 29, 2021, from paying dividends and/or the repurchase of our commonand making any 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 stock repurchases as follows:

Performance Graph

 

The following graph compares the cumulative total shareholders’shareholder return on our common stock for the five fiscal years ended December 27, 201730, 2020 (December 26, 201230, 2015 to December 27, 2017)30, 2020) 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 2020 as the peer group we utilized in 2019 had diminished in size due primarily to formerly public peer companies ceasing to be publicly traded. 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 26, 201230, 2015 (the last day of fiscal year 2012)2015) in each of the Company’s common stock, the Russell 2000® Index and the current and former peer groupgroups and that all dividends were reinvested.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN

ASSUMES $100 INVESTED ON DECEMBER 26, 201230, 2015

ASSUMES DIVIDENDS REINVESTED

FISCAL YEAR ENDED DECEMBER 27, 201730, 2020

 

 

 

 

The following table provides selected financial data that was extracted or derived from our audited consolidated financial statements. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related notes included elsewhere in this report.