UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------------------------------------------------------------
FORM 10-K/A
AMENDMENT NO. 1
--------------------------------------------------------------------------------
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
DENNY'S CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3487402
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
203 EAST MAIN STREET
SPARTANBURG, SOUTH CAROLINA 39319-9966
--------------------------------------------------------------------------------
(Address of principal executive offices)
(864) 597-8000
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Explanatory Note: This Amendment No. 1 to the Annual Report on Form 10-K of the
above-referenced registrant is being filed pursuant to Rule 15d-21 of the
Commission solely to furnish the financial statements required by Form 11-K with
respect to the Denny's Corporation 401(k) Plans.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report for 2002 on Form
10-K as set forth in the pages attached hereto:
Part II, Item 8. Financial Statements and Supplementary Data.
Part IV, Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Denny's Corporation
Dated: June 30, 2003 By: /s/ Rhonda J. Parish
--------------------
Rhonda J. Parish
Executive Vice President, General
Counsel and Secretary
CERTIFICATIONS
I, Nelson J. Marchioli, President and Chief Executive Officer of Denny's
Corporation, certify that:
1. I have reviewed this annual report on Form 10-K/A of Denny's Corporation,
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 30, 2003 /s/ Nelson J. Marchioli
-----------------------
Nelson J. Marchioli
President and Chief
Executive Officer
CERTIFICATIONS
I, Andrew F. Green, Senior Vice President and Chief Financial Officer of Denny's
Corporation, certify that:
1. I have reviewed this annual report on Form 10-K/A of Denny's Corporation,
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 30, 2003 /s/ Andrew F. Green
-------------------
Andrew F. Green
Senior Vice President and
Chief Financial Officer
Part II, Item 8. Financial Statements and Supplementary Data of the Annual
Report for 2002 on Form 10-K is hereby amended to include the following:
FINANCIAL STATEMENTS
OF
FORM 11-K
Filed pursuant to Rule 15d-21
promulgated under Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002
Full title of the plans and the address of the plans, if different from that of
the issuer named below:
1. DENNY'S SALARIED 401(K)PLAN
2. DENNY'S HOURLY/HCE 401(K)PLAN
Name of the issuer of the securities held pursuant to the plans and the address
of its principal executive offices:
DENNY'S CORPORATION
203 EAST MAIN STREET
SPARTANBURG, SOUTH CAROLINA 29319-9966
Part IV, Item 14(a)(1) of the Annual Report on Form 10-K for the period
ended December 25, 2002 is amended to insert the following financial statements
required by Form 11-K, copies of which are filed herewith:
1. Denny's Salaried 401(k) Plan Financial Statements at December 31, 2002
and 2001 and for the year ended December 31, 2002, and Independent
Auditors' Report.
2. Denny's Hourly/HCE 401(k) Plan Financial Statements at December 31,
2002 and 2001 and for the year Ended December 31, 2002, and
Independent Auditors' Report.
Part IV, Item 14(a)(3) and the Exhibit Index of the Annual Report on Form
10-K for the period ended December 25, 2002 are amended to insert the following
exhibit required by Form 11-K in appropriate numerical order, a copy of which is
filed herewith.
Exhibit No. Description
----------- -----------
23.1 Consent of KPMG LLP pursuant to Note to Required
Information of Form 11-K.
23.2 Consent of Deloitte & Touche LLP pursuant to Note to
Required Information of Form 11-K.
99.1 Statement of Nelson J. Marchioli, President and Chief
Executive 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.
99.2 Statement of Andrew F. Green, Senior 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.
Denny's Salaried 401(k) Plan
Financial Statements
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Retirement Committee
Denny's Salaried 401(k) Plan:
We have audited the accompanying statement of net assets available for benefits
of Denny's Salaried 401(k) Plan (the Plan) as of December 31, 2002, and the
related statement of changes in net assets available for benefits for the year
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based upon our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2002, and the changes in net assets available for benefits for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
Greenville, South Carolina
June 27, 2003
2
INDEPENDENT AUDITORS' REPORT
To the Retirement Committee of
Denny's Salaried 401(k) Plan:
We have audited the accompanying statement of net assets available for benefits
of Denny's Salaried 401(k) Plan (formerly Advantica Salaried 401(k) Plan)(the
"Plan") as of December 31, 2001. This financial statement is the responsibility
of the Plan's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statement presents fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
June 7, 2002
3
DENNY'S SALARIED 401(K) PLAN
Statements of Net Assets Available for Benefits
DECEMBER 31, 2002 AND 2001
2002 2001
----------- -----------
Assets:
Investments - plan interest in Denny's
401(k) Plans Master Trust (notes 1, 2, 3 and 4) $40,577,963 45,828,916
----------- -----------
Receivables:
Employer's contribution 24,965 33,559
Participants' contributions 74,020 99,371
----------- -----------
Total receivables 98,985 132,930
----------- -----------
Total assets 40,676,948 45,961,846
----------- -----------
Liabilities:
Accrued expenses 32,441 34,941
Excess contributions refundable (note 1) 13,907 -
Payable to FRD successor plan (note 1) 2,183,627 -
----------- -----------
Total liabilities 2,229,975 34,941
----------- -----------
Net assets available for benefits $38,446,973 45,926,905
=========== ===========
See accompanying notes to financial statements.
4
DENNY'S SALARIED 401(K) PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
2002
------------
Additions:
Investment loss - plan interest in
Denny's 401(k) Plans Master Trust
investment loss (notes 1, 2 and 3) $ (2,225,993)
------------
Contributions:
Employer's 664,559
Participants' 2,166,054
------------
Total contributions 2,830,613
------------
Total additions, net 604,620
------------
Deductions:
Benefits paid to participants 6,253,935
Administrative expenses 85,606
------------
Total deductions 6,339,541
------------
Transfers from Denny's Hourly/HCE
401(k) Plan (note 1) 438,616
Transfer to FRD successor plan (note 1) (2,183,627)
------------
Net decrease in net assets available
for benefits (7,479,932)
Net assets available for benefits:
Beginning of year 45,926,905
------------
End of year $ 38,446,973
============
See accompanying notes to financial statements.
5
Denny's Salaried 401(k) Plan
Notes to Financial Statements
December 31, 2002 and 2001
(1) Description of the Plan
The following brief description of the Denny's Salaried 401(k) Plan (the
Plan) is provided for general information purposes only. Participants
should refer to the Plan document for more complete information.
(a) General
The Plan, formerly the Advantica 401(k) Plan, is a qualified
deferred compensation plan, subject to the Employee Retirement
Income Security Act of 1974 (ERISA). Any non-highly compensated
salaried employee of Denny's Corporation (Denny's or the Company,
formerly know as Advantica Restaurant Group, Inc. (Advantica)),
who has attained age 21 and has completed 6 months of service with
the Company is eligible to participate in the Plan. The Plan's
committee and plan administrator control and manage the operation
and administration of the Plan. American Express Trust Company
(American Express) serves as the Plan's trustee.
On July 10, 2002, the Company completed the divestiture of FRD
Acquisition Co. (FRD), a wholly owned subsidiary of Advantica. In
conjunction with the sale, FRD employees were no longer eligible
to participate in the Plan. The participant balances of the FRD
employees were transferred to the successor trustee effective
December 31, 2002. The assets of the FRD participants were
transferred on January 2, 2003 and have consequently been
presented as a liability of the Plan as of December 31, 2002.
Effective July 11, 2002, the Plan was amended, and the Advantica
Salaried 401(k) Plan was renamed the Denny's Salaried 401(k) Plan.
On an annual basis, assets of employees who have changed status,
as defined in the plan document, are transferred between the
Denny's Salaried 401(k) Plan and the Denny's Hourly/HCE 401(k)
Plan. During 2002, transfers from the Denny's Hourly/HCE 401(k)
Plan to the Denny's Salaried 401(k) Plan due to change in status
totaled $438,616.
(b) Interest in Master Trust
The Plan's investments are held in the Denny's 401(k) Plans Master
Trust (the Master Trust) which was established for the investment
of assets of the Plan and the Denny's Hourly/HCE 401(k) Plan.
Effective July 11, 2002, the Master Trust Agreement was amended,
and the Advantica 401(k) Plan's Master Trust was renamed the
Denny's 401(k) Plans Master Trust.
(c) Contributions
Each year, participants may make pre-tax contributions of up to
15% of eligible compensation. Participants may also contribute
amounts representing distributions from other qualified defined
benefit or defined contribution plans.
In 2002, the Company matched 100% of employee pre-tax
contributions, up to 3% of compensation for all participating
employees of the Company. In 2001, the following employer
contribution formulas were used: 40% of employee pre-tax
contributions, up to 6% of compensation for Advantica, Flagstar,
and FRD employees; and 100% of employee pre-tax contributions, up
to 3% of compensation for Denny's employees.
6
Contributions are subject to certain Internal Revenue Code (IRC)
limitations. Excess contributions to be returned to participants
are shown as a liability in the accompanying statement of net
assets available for benefits.
(d) Participant Accounts
Individual accounts are maintained for each plan participant. Each
participant's account is credited with the participant's
contribution and allocations of the Company's contributions and
earnings, and is charged with allocations of plan losses and
administrative expenses and benefit payments, if applicable.
Allocations are based on participant earnings or account balances,
as defined. The benefit to which a participant is entitled is the
benefit that can be provided from the participant's vested
account.
(e) Vesting
All participants are immediately vested in their contributions
plus actual earnings thereon. Vesting in the Company's matching
and discretionary contribution portion of their accounts plus
actual earnings thereon is based on years of continuous service.
For each employee whose initial date of employment is after
December 31, 1998, the Company's contribution portion of his/her
account plus actual earnings thereon will be 100% vested after
five years of continuous service unless the following terms
provide for more accelerated vesting. For certain employees of
Advantica and Flagstar who were initially employed before January
1, 1999, participants are immediately vested in their
contributions and employer contributions plus actual earnings
thereon.
(f) Investment Options
Participants can direct participant and employer contributions in
1% increments in a combination of any of 14 investment options
currently offered by the Plan. Participants may change their
investment options at any time via telephone.
(g) Participant Loans
Participants may borrow from their fund accounts up to the lesser
of 50% of the vested portion of their account balance, or the
amount of $50,000 less the highest outstanding loan balance during
the prior 12-month period. The minimum loan amount is $1,000, and
each participant may have only one loan outstanding at any time.
The plan document indicates that a reasonable borrowing rate will
be assessed, typically evidenced by the prime rate charged by the
Plan's trustee. The loans are secured by the balance in the
participant's account. The participant also bears any loan
administration costs incurred. Loans are repaid through payroll
deductions in equal installments with the loan terms ranging from
6 to 54 months. Loan repayments cannot exceed 30% of the
participant's salary. If an employee who has a loan outstanding
terminates employment, no benefit will be paid from the Plan to
the participant until the outstanding loan balance and accrued
interest is paid in full. Loans outstanding at December 31, 2002
have a range of interest rates from 4.25% to 9.5%.
(h) Payment of Benefits
On termination of service due to death, disability, or retirement,
a participant may elect to receive either a lump-sum amount equal
to the value of the participant's vested interest in his or her
account,
7
or annual installments over a 10-year period. For termination of
service due to other reasons, a participant may receive the value
of the vested interest in his or her account as a lump-sum
distribution.
(i) Administrative Expenses
Administrative expenses of the Plan are paid by the Plan.
(j) Withdrawals
Withdrawals during employment are permitted only under hardship
circumstances that are determined by the Internal Revenue Service
"Safe Harbor" rules. Participants who are age 59-1/2 or older may
withdraw from their account at any time, for any reason allowed by
law.
(k) Forfeited Accounts
Forfeitures are used to reduce future employer contributions to
the Plan.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements have been prepared on the
accrual basis of accounting and in accordance with accounting
principles generally accepted in the United States of America.
(b) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of additions and
deductions during the reporting period. Actual results could
differ from those estimates.
(c) Investment Valuation and Income Recognition
Except for the investment in guaranteed investment contracts,
which is fully benefit responsive and thus, has been valued at
contract value, the Plan's interest in Denny's 401(k) Plans Master
Trust is presented at fair value, which has been determined based
on the fair value of the underlying investments of the Master
Trust.
Purchases and sales of securities are recorded on a trade-date
basis. Dividends are recorded on the ex-dividend date.
(d) Payment of Benefits
Benefit payments to participants are recorded upon distribution.
(e) Investment Risk
The Trust provides for investments that are exposed to risk, such
as interest rate, credit, and market volatility risk. Due to the
level of risk associated with certain investment securities, it is
possible that
8
changes in the value of investment securities may occur in the
near future and that changes could materially affect the amounts
reported in the statement of net assets available for benefits.
(3) Master Trust
All of the Plan's investment assets are held in a trust account at
American Express and consist of an undivided interest in an investment
account of the Denny's 401(k) Plans Master Trust, a master trust
established by the Company and administered by American Express, the
Plan's trustee. Use of the Master Trust permits the commingling of trust
assets with the assets of the Denny's Hourly/HCE 401(k) plan for
investments and administrative purposes. Although assets of both plans
are commingled in the Master Trust, the trustee maintains supporting
records for the purpose of allocating the net gain or loss of the
investment account to the participating plans. The net investment income
or loss of the investment assets is allocated by the trustee to each
participating plan based on the relationship of the interest of each plan
to the total of the interest of the participating plans.
9
Investments of the Master Trust at December 31, 2002 and 2001 are
summarized as follows:
2002 2001
------------ ------------
Cash $ - 1,880
Collective trust funds, at estimated fair value:
American Express Trust International Equity Index Fund II 58,278 62,029
American Express Trust Small Cap Equity Index Fund II 139,609 152,491
American Express Trust Money Market Fund I 404,547 791,200
American Express Trust Income Fund I 49,868,288 12,894,363
American Express Emerging Growth Fund II 5,121,039 6,543,185
American Express Trust Equity Index Fund II 8,121,437 11,025,967
------------ ------------
Total 63,713,198 31,469,235
------------ ------------
Mutual funds, at quoted market price:
AXP Total Stock Market Index Fund - 170,887
AXP New Dimensions Fund Y 1,262,495 1,471,871
Lazard Small Capital Fund 5,167,597 6,528,600
Neuberger & Berman Focus Trust Fund 1,258,258 1,489,739
Templeton Foreign Fund 5,548,046 6,394,753
Spartan Total Money Market Index Fund 172,610 -
------------ ------------
Total 13,409,006 16,055,850
------------ ------------
Guaranteed investment contracts, at contract value - 39,020,668
Denny's Corporation common stock at quoted market price 286,963 273,804
Morgan Stanley 7.125% bonds, due 1/15/2003 210,296 -
FDIC Class 1A 6.75% bonds, due 5/25/2026 2,784 -
Loans to participants, at estimated fair value 819,176 1,048,723
------------ ------------
Total investments $ 78,441,423 87,870,160
============ ============
Plan's investment in the Master Trust $ 40,577,963 45,828,916
============ ============
Plan's investment in the Master Trust as a percentage
of total 51.73% 52.16%
====== ======
10
The net investment loss for the Master Trust for the year ended December
31, 2002 is summarized below:
2002
------------
Net depreciation in fair
value of investments:
Collective trust funds $ (2,080,924)
Mutual funds (2,572,253)
Common stocks (47,527)
------------
(4,700,704)
Interest and dividend income 1,189,460
------------
Total investment loss $ (3,511,244)
============
The Plan's share of the Master Trust investment loss for the year ended
December 31, 2002 was 63.4%.
(4) Party-in-Interest Transactions
Certain Master Trust investments are units of collective trust funds and
shares of mutual funds managed by American Express. American Express
serves as trustee as defined by the Plan and, therefore, these
transactions qualify as party-in-interest transactions. Fees paid by the
Plan to American Express for the year ended December 31, 2002 amounted to
approximately $75,000.
The Master Trust also invests in common stock of the Plan's sponsor.
These transactions also qualify as party-in-interest transactions.
(5) Plan Termination
Although it has not expressed any intention to do so, the Company has the
right under the Plan to terminate the Plan subject to the provisions set
forth in ERISA. In the event that the Plan is terminated participants
would become 100% vested in their accounts.
(6) Tax Status
The Internal Revenue Service has issued a favorable determination letter
dated January 17, 2003, indicating that the Plan qualifies under the
applicable section of the IRC and is, therefore, not subject to tax under
present income tax laws. A Plan is required to operate in conformity with
the IRC in order to maintain its qualification. The Plan's management is
not aware of any course of action or series of events that have occurred
that might adversely affect the Plan's qualified status.
11
Denny's Hourly/HCE 401(k)Plan
Financial Statements
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Retirement Committee
Denny's Hourly/HCE 401(k) Plan:
We have audited the accompanying statement of net assets available for benefits
of Denny's Hourly/HCE 401(k) Plan (the Plan) as of December 31, 2002, and the
related statement of changes in net assets available for benefits for the year
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based upon our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan as
of December 31, 2002, and the changes in net assets available for benefits for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Greenville, South Carolina
June 27, 2003
2
INDEPENDENT AUDITORS' REPORT
To the Retirement Committee of
Denny's Hourly/HCE 401(k) Plan:
We have audited the accompanying statement of net assets available for benefits
of Denny's Hourly/HCE 401(k) Plan (formerly Advantica Hourly/HCE 401(k) Plan
(the "Plan") as of December 31, 2001. This financial statement is the
responsibility of the Plan's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statement presents fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
June 7, 2002
3
DENNY'S HOURLY/HCE 401(K) PLAN
Statements for Net Assets Available for Benefits
December 31, 2002 and 2001
2002 2001
----------- -----------
Assets:
Investments - plan interest in Denny's 401(k) Plans
Master Trust (notes 1, 2, 3 and 4) $37,863,460 42,041,244
----------- -----------
Receivables:
Employer's contribution 20,471 23,769
Participants' contributions 54,559 69,907
----------- -----------
Total receivables 75,030 93,676
----------- -----------
Total assets $37,938,490 42,134,920
----------- -----------
Liabilities:
Accrued expenses 31,774 34,022
Excess contributions refundable (note 1) 164,731 196,167
Payable to FRD successor Plan (note 1) 634,357 -
----------- -----------
Total liabilities 830,862 230,189
----------- -----------
Net assets available for benefits $37,107,628 41,904,731
=========== ===========
See accompanying notes to financial statements.
4
DENNY'S HOURLY/HCE 401(K) PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
2002
------------
Additions:
Investment loss - plan interest in
Denny's 401(k) Plans Master Trust
investment loss (notes 1, 2 and 3) $ (1,285,251)
------------
Contributions:
Employer's 460,537
Participants' 2,064,713
------------
Total contributions 2,525,250
------------
Total additions, net 1,239,999
------------
Deductions:
Benefits paid to participants 4,882,232
Administrative expenses 81,897
------------
Total deductions 4,964,129
------------
Transfers to Denny's Salaried
401(k) Plan (note 1) (438,616)
Transfer to FRD successor plan (note 1) (634,357)
------------
Net decrease in net assets available
for benefits (4,797,103)
Net assets available for benefits:
Beginning of year 41,904,731
------------
End of year $ 37,107,628
============
See accompanying notes to financial statements.
5
Denny's Hourly/HCE 401(k) Plan
Notes to Financial Statements
December 31, 2002 and 2001
(1) Description of the Plan
The following description of the Denny's Hourly/HCE 401(k) Plan (the
Plan) is provided for general information purposes only. Participants
should refer to the Plan document for more complete information.
(a) General
The Plan is a qualified deferred compensation plan, subject to the
Employee Retirement Income Security Act of 1974 (ERISA). Any
hourly employee or highly compensated employee of Denny's
Corporation (Denny's or the Company, formerly known as Advantica
Restaurant Group, Inc. (Advantica)), who has attained age 21 and
has completed 6 months of service with the Company is eligible to
participate in the Plan. The Plan's committee and plan
administrator control and manage the operation and administration
of the Plan. American Express Trust Company (American Express)
serves as the Plan's trustee.
On July 10, 2002, the Company completed the divestiture of FRD
Acquisition Co. (FRD), a wholly owned subsidiary of Advantica. In
conjunction with the sale, FRD employees were no longer eligible
to participate in the Plan. The participant balances of the FRD
employees were transferred to the successor trustee effective
December 31, 2002. The assets of the FRD participants were
transferred on January 2, 2003 and have consequently been
presented as a liability of the Plan as of December 31, 2002.
Effective July 11, 2002, the Plan was amended, and the Advantica
Hourly/HCE 401(k) Plan was renamed the Denny's Hourly/HCE 401(k)
Plan.
On an annual basis, assets of employees who have changed status,
as defined in the Plan document, are transferred between the
Denny's Hourly/HCE 401(k) Plan and the Denny's Salaried 401(k)
Plan. During 2002, transfers to the Denny's Salaried 401(k) Plan
from the Denny's Hourly/HCE 401(k) Plan due to change in status
totaled $438,616.
(b) Interest in Master Trust
The Plan's investments are in the Denny's 401(k) Plans Master
Trust (Master Trust) which was established for the investment of
assets of the Plan and the Denny's Salaried 401(k) Plan.
Effective July 11, 2002, the Master Trust Agreement was amended,
and the Advantica 401(k) Plan Master Trust was renamed the Denny's
401(k) Plan Master Trust.
(c) Contributions
Participants may make pre-tax contributions of up to 15% of
eligible compensation. Participants may also contribute amounts
representing distributions from other qualified defined benefit or
defined contribution plans.
In 2002, the Company matched 100% of employee pre-tax
contributions, up to 3% of compensation for all participating
employees of the Company. In 2001, the following employer
contribution formulas were used: 40% of employee pre-tax
contributions, up to 6% of compensation for Advantica, Flagstar,
and FRD hourly employees; and 100% of employee pre-tax
contributions, up to 3% of compensation for Denny's employees.
Highly compensated employees are not eligible for the employer
match.
6
Contributions are subject to certain Internal Revenue Code (IRC)
limitations. Excess contributions to be returned to participants
are shown as a liability in the accompanying statement of net
assets available for benefits.
(d) Participant Accounts
Individual accounts are maintained for each plan participant. Each
participant's account is credited with the participant's
contribution and allocations of the Company's contributions (for
hourly employees) and earnings, and is charged with allocations of
plan losses, administrative expenses, and benefit payments, if
applicable. Allocations are based on earnings and participant
account balances, as defined. The benefit to which a participant
is entitled is the benefit that can be provided from the
participant's vested account.
(e) Vesting
All participants are immediately vested in their contributions
plus actual earnings thereon. Vesting in the Company's matching
and discretionary contribution portion of their accounts plus
actual earnings thereon is based on years of continuous service.
For each hourly employee whose initial date of employment is after
December 31, 1998, the Company's contribution portion of their
account plus actual earnings thereon will be 100% vested after
five years of continuous service unless the following terms
provide for more accelerated vesting. For certain employees of
Advantica and Flagstar who were initially employed before January
1, 1999, participants are immediately vested in their
contributions and employer contributions, plus actual earnings
thereon.
(f) Investment Options
Participants can direct participant and employer contributions in
1% increments in a combination of any of 14 investment options
currently offered by the Plan. Participants may change their
investment options at any time via telephone.
(g) Payment of Benefits
On termination of service due to death, disability, or retirement,
a participant may elect to receive either a lump-sum amount equal
to the value of the participant's vested interest in his or her
account, or annual installments over a 10-year period. For
termination of service due to other reasons, a participant may
receive the value of the vested interest in his or her account as
a lump-sum distribution.
(h) Administrative Expenses
Administrative expenses of the Plan are paid by the Plan.
(i) Withdrawals
Withdrawals during employment are permitted only under hardship
circumstances that are determined by the Internal Revenue Service
"Safe Harbor" rules. Participants who are age 59-1/2 or older may
withdraw from their account at any time, for any reason allowed by
law.
7
(j) Forfeited Accounts
Forfeitures are used to reduce future employer contributions to
the Plan.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements have been prepared on the
accrual basis of accounting and in accordance with accounting
principles generally accepted in the United States of America.
(b) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of additions and
deductions during the reporting period. Actual results could
differ from those estimates.
(c) Investment Risk
The Trust provides for investments that are exposed to risk, such
as interest rate, credit, and market volatility risk. Due to the
level of risk associated with certain investment securities, it is
possible that changes in the value of investment securities may
occur in the near future and that changes could materially affect
the amounts reported in the statement of net assets available for
benefits.
(d) Investment Valuation and Income Recognition
Except for the investment in guaranteed investment contracts,
which is fully benefit responsive and thus, has been valued at
contract value, the Plan's interest in Denny's 401(k) Plans Master
Trust is presented at fair value which has been determined based
on the fair value of the underlying investments of the Master
Trust.
Purchases and sales of securities are recorded on a trade-date
basis. Dividends are recorded on the ex-dividend date.
(e) Payment of Benefits
Benefit payments to participants are recorded upon distribution.
(3) Master Trust
All of the Plans' investment assets are held in a trust account at
American Express and consist of an undivided interest in an investment
account of the Denny's 401(k) Plans Master Trust, a master trust
established by the Company and administered by American Express, the
Plan's trustee. Use of the Master Trust permits the commingling of trust
assets with the assets of the Denny's Salaried 401(k) Plan for
investments and administrative purposes. Although assets of both plans
are commingled in the Master Trust, the trustee maintains supporting
records for the purpose of allocating the net gain or loss of the
investment account to the participating plans. The net investment income
or loss of the investment assets is
8
allocated by the trustee to each participating plan based on the
relationship of the interest of each plan to the total of the interests
of the participating plans.
The investments of the Master Trust at December 31, 2002 and 2001, are
summarized as follows:
2002 2001
------------ ------------
Cash $ - 1,880
Collective trust funds, at estimated fair value:
American Express Trust International Equity Index Fund II 58,278 62,029
American Express Trust Small Cap Equity Index Fund II 139,609 152,491
American Express Trust Money Market Fund I 404,547 791,200
American Express Trust Income Fund I 49,868,288 12,894,363
American Express Emerging Growth Fund II 5,121,039 6,543,185
American Express Trust Equity Index Fund II 8,121,437 11,025,967
------------ ------------
Total 63,713,198 31,469,235
------------ ------------
Mutual funds, at quoted market price:
AXP Total Stock Market Index Fund - 170,887
AXP New Dimensions Fund Y 1,262,495 1,471,871
Lazard Small Capital Fund 5,167,597 6,528,600
Neuberger & Berman Focus Trust Fund 1,258,258 1,489,739
Templeton Foreign Fund 5,548,046 6,394,753
Spartan Total Money Market Index Fund 172,610 -
------------ ------------
Total 13,409,006 16,055,850
------------ ------------
Guaranteed investment contracts, at contract value - 39,020,668
Denny's Corporation common stock at quoted market price 286,963 273,804
Morgan Stanley 7.125% bonds, due 1/15/2003 210,296 -
FDIC Class 1A 6.75% bonds, due 5/25/2026 2,784 -
Loans to participants, at estimated fair value 819,176 1,048,723
------------ ------------
Total investments $ 78,441,423 87,870,160
============ ============
Plan's investment in the Master Trust $ 37,863,460 42,041,244
============ ============
Plan's investment in the Master Trust as a percentage
of total 48.27% 47.84%
====== ======
9
The net investment loss for the Master Trust for the year ended December
31, 2002 is summarized below:
2002
------------
Net depreciation in fair
value of investments:
Collective trust funds $ (2,080,924)
Mutual funds (2,572,253)
Common stocks (47,527)
------------
(4,700,704)
Interest and dividend income 1,189,460
------------
Total investment loss $ (3,511,244)
============
The Plan's share of the Master Trust investment loss for the year ended
December 31, 2002 was 36.6%.
(4) Party-In-Interest Transactions
Certain Master Trust investments are units of collective trust funds and
shares of mutual funds managed by American Express. American Express
serves as trustee as defined by the Plan and, therefore, these
transactions qualify as party-in-interest transactions. Fees paid by the
Plan to American Express for the year ended December 31, 2002 amounted to
approximately $73,000.
The Master Trust also invests in the common stock of the Plan's sponsor.
These transactions also qualify as party-in-interest transactions.
(5) Plan Termination
Although it has not expressed any intention to do so, the Company has the
right under the Plan to terminate the Plan subject to the provisions set
forth in ERISA. In the event that the Plan is terminated, participants
would become 100% vested in their accounts.
(6) Tax Status
The Internal Revenue Service has issued a favorable determination letter
dated January 17, 2003, indicating that the Plan qualifies under the
applicable sections of the IRC and is, therefore, not subject to tax
under present income tax laws. A Plan is required to operate in
conformity with the IRC in order to maintain its qualification. The
Plan's management is not aware of any course of action or series of
events that have occurred that might adversely affect the Plan's
qualified status.
10