FAT Brands(FATBB) - 2022 Q4 - Annual Report

PART I This section details the company's business model, competitive strengths, growth strategies, and addresses key risks, legal matters, and property information Business Overview FAT Brands Inc. operates as a leading multi-brand restaurant company primarily through a franchise model, generating revenue from franchise fees and royalties across various dining categories - FAT Brands Inc. primarily operates as a franchisor with an asset-light model, generating revenue from franchise fees and royalties, while also owning a manufacturing facility[16][17] - The company's growth strategy focuses on expanding existing brands, acquiring new concepts, and leveraging its scalable management platform for minimal incremental corporate overhead[17][31] 2022 Fiscal Year Operational Overview | Metric | Data (as of December 25, 2022) | | :--- | :--- | | Number of Restaurant Brands | 17 | | Total Restaurants (including under development) | Approx. 2,200 | | Company-Owned Restaurants | Approx. 130 | | FY2022 System-Wide Sales | Approx. $2.2 billion | Our Concepts The company owns and franchises 17 restaurant brands across four distinct dining categories as of December 25, 2022 - As of December 25, 2022, the company owns and franchises restaurant brands across four categories[20] - Quick Service: Round Table Pizza, Marble Slab Creamery, Great American Cookies, Hot Dog on a Stick, Pretzelmaker[21][22] - Fast Casual: Fazoli's, Fatburger, Johnny Rockets, Elevation Burger, Yalla Mediterranean (closed due to pandemic, planned redesign and relaunch)[24][25] - Casual Dining: Buffalo's Cafe and Buffalo's Express, Hurricane Grill & Wings, Ponderosa Steakhouse / Bonanza Steakhouse, Native Grill & Wings[27] - Polished Casual Dining: Twin Peaks[28] Our Competitive Strengths The company leverages a multi-brand management team, strong brand portfolio, cross-selling capabilities, asset-light model, and robust franchisee support for sustained growth - Multi-Brand and Multi-Category Management Team: Possesses a strong management and system platform supporting 17 brands, with independent teams focused on four categories[29] - Strong Brands Aligned with FAT Brands' Vision: Features leading brands across four categories, offering fresh, authentic, and delicious meals with unique characteristics appealing to diverse domestic and international consumers[29] - Cross-Selling Capabilities: Ability to cross-sell new brands to existing franchisees, accelerating growth and meeting expansion demands, resulting in a development pipeline of over 1,000 restaurants[30] - Asset-Light Business Model: Primarily operates as a franchisor, yielding high-profit margins and attractive free cash flow while minimizing restaurant operating risks[30] - Robust Franchisee Support: Provides extensive support services including public relations, supply chain assistance, site selection, staff training, and operational oversight, serving over 750 franchisees across 40 countries and 48 states[31] Our Growth Strategy The company's growth strategy centers on organic expansion, manufacturing growth, leveraging polished casual dining, boosting same-store sales, co-branding, optimizing capital, and strategic international acquisitions - Organic Growth through New Store Pipeline and Franchisee Recruitment: Over 1,000 restaurants are currently in development, with strong demand from new and existing franchisees in an unsaturated global market[31] - Expand Manufacturing Business: The Atlanta manufacturing facility operates at approximately one-third capacity, with plans to expand production by supplying batter to other brand categories and securing third-party manufacturing contracts[32] - Capitalize on Polished Casual Dining Growth: The Twin Peaks brand has grown from 85 to 95 locations since its October 2021 acquisition, with continued growth planned through increased company-owned and franchised units[32] - Accelerate Same-Store Sales Growth: Implements multi-faceted strategies including new menu introductions, PR and experiential marketing, mobile app development, third-party delivery partnerships, and encouraging franchisee capital expenditure for remodels and co-branding[32] - Drive Store Growth through Co-Branding: Promotes multi-brand co-location models (e.g., Fatburger/Buffalo's Express) to serve broader customer bases by sharing kitchen space, projected to increase average unit sales by 20%-30%[35] - Optimize Capital Structure: Significantly reduced net cost of capital in 2021 through whole business securitization financing, with future plans to refinance and seek investment-grade ratings for further cost reduction[35] - Continue International Expansion: Operates franchised locations in 40 countries and 48 U.S. states, targeting further penetration in Middle Eastern and Asian markets[35] - Acquire New Brands to Enhance Existing Categories: The management platform is designed for cost-effective and seamless integration of new restaurant concepts, particularly within existing categories such as salads, sandwiches, healthy organic foods, coffee dessert shops, and sports bars[35] Franchise Program The company primarily drives new store growth through its franchise development strategy, which involves rigorous franchisee qualification and selection processes - The company primarily drives new store growth through its franchise development strategy, which involves rigorous franchisee qualification and selection[33] - Franchise Agreements: Typically include initial franchise fees ranging from $0 to $50,000 per store and royalties from 0.75% to 7.0% of net sales, with franchisees also paying advertising fees based on net sales[34] - Development Agreements: Facilitate planned restaurant expansion by granting developers exclusive rights to build and operate stores in specific areas, requiring a minimum number of openings within a set timeframe and payment of fees creditable against future franchise fees[35] Franchisee Support The company provides comprehensive support to its franchisees, encompassing marketing, site selection, supply chain assistance, food safety, management information systems, and on-site operational guidance - Marketing: Marketing strategies center on "fresh, authentic, and delicious," engaging customers through local community marketing, in-store events, product placements, social media, and digital advertising to enhance brand awareness[36][37] - Site Selection and Development: The franchise development department assists franchisees with site selection, review, leasing, and development, considering factors such as traffic patterns, visibility, and competition[38][39] - Supply Chain Assistance: Collaborates with top-tier suppliers and distribution networks to ensure ingredient quality and competitive pricing, utilizing third-party purchasing and consulting firms for contract negotiations and establishing reliable supply chains to prevent disruptions[40][41][42] - Food Safety and Quality Assurance: Maintains stringent food safety standards, requiring franchisees to source ingredients from approved suppliers, with direct collaboration from supply chain and field consultant teams[43][44] - Management Information Systems: Utilizes various back-office, POS systems, and tools to monitor operational performance, food safety, quality control, customer feedback, and profitability, providing real-time business data to support franchisees[45][46] - Field Consultant Assistance: Professional franchise operations consultant teams work on-site with franchisees to ensure brand integrity and provide operational and marketing support, including store visits, training, quarterly seminars, P&L statement collection, new store opening support, and inspections[47][48][49] Competition The company faces intense competition across all dining segments, influenced by consumer trends, economic conditions, and low entry barriers, requiring continuous adaptation in pricing, service, location, and food quality - The company faces intense competition in the quick service, fast casual, casual, and polished casual dining segments, with competitive factors including price, service, location, and food quality. The industry is influenced by consumer trends, economic conditions, demographics, and changes in food nutritional content, and low barriers to entry mean new competitors can emerge at any time[49][50] Seasonality and Effects of Weather While some brands experience seasonal fluctuations and adverse weather impacts, the company's overall financial performance does not exhibit significant seasonal variations, though climate change may increase future operational risks - Although some brands are affected by seasonal fluctuations and adverse weather, the company's overall financial performance does not show significant seasonal changes; however, climate change may lead to increased extreme weather events, potentially impacting future operations[51] Intellectual Property The company holds significant domestic and international intellectual property, including trademarks, service marks, and trade secrets, which it actively protects against infringement - The company owns significant domestic and international intellectual property, including trademarks, service marks, trade secrets, and other proprietary information, and actively protects against infringement[52] Human Capital Resources The company values its employees, offering competitive compensation, benefits, and training, and had approximately 5,400 employees as of December 25, 2022, including a Diversity, Equity, and Inclusion Officer - The company values its employees, providing competitive compensation, benefits, and continuous training to encourage personal growth. As of December 25, 2022, the company had approximately 5,400 employees (1,100 full-time), and has appointed a Diversity, Equity, and Inclusion Officer[53][54][55] Government Regulation The company's operations are subject to extensive federal, state, local, and international regulations covering franchise relationships, marketing, food safety, labor, and anti-bribery laws - U.S. Operations: Subject to federal, state, and local laws and regulations primarily concerning franchise relationships, marketing, food labeling, labor and employment, health and safety, and anti-bribery and anti-corruption laws[56][57] - International Operations: Subject to national and local laws and regulations similar to the U.S., also including tariffs on imported goods and equipment, foreign investment regulations, and anti-bribery and anti-corruption laws[58] Risk Factors The company faces diverse risks from its franchise model, operational challenges, substantial debt, acquisition integration, health and safety, reputation, intellectual property, data security, competition, supply chain, climate change, and regulatory compliance - The company's operations and growth strategy are highly dependent on franchisee success, where franchisee financial distress, operational mismanagement, or inaccurate sales reporting could negatively impact company performance[64][65][66] - The company faces risks of failing to recruit sufficient qualified franchisees, delays in new store openings, negative publicity, and brand value dilution[67][68][70][71][72] - The company has substantial outstanding debt, which may hinder its ability to generate sufficient cash flow to meet debt obligations and poses a risk of default. Additionally, acquiring new brands may present integration difficulties and management pressures[73][74][75][76][77] - Health issues (e.g., disease outbreaks), food safety concerns, additional regulations and liabilities related to alcohol sales, damage to corporate reputation, failure to protect intellectual property, customer credit card data breaches, computer system disruptions, and cybersecurity incidents could all adversely affect the company's business[78][79][80][81][82][83][84][85][86][87][88][89][90] - The retail food industry is highly competitive, and supply chain shortages or disruptions, climate change, changes in consumer discretionary spending and behavior, international market expansion risks, reliance on key executives, and labor shortages or increased costs could all impact the company's performance[91][92][93][94][95][96][97][98][99][100][101][102] - The company faces risks of government investigations, shareholder lawsuits, environmental litigation, and general litigation, potentially leading to legal fees, management distraction, fines, or reputational damage. Regulatory changes or non-compliance (e.g., labor laws, anti-bribery laws) could also adversely affect business operations and financial condition[103][104][105][106][107][108][109][110][111][112][113][114][115] - The company's equity structure is concentrated, with Fog Cutter Holdings LLC controlling approximately 55.2% of voting power, potentially leading to conflicts of interest with public shareholders. Dual-class stock structure, anti-takeover provisions, future preferred stock issuances, and exclusive jurisdiction clauses for Delaware courts may limit Class A common stock shareholder influence or prevent changes in company control[116][117][118][119][120][121][122][123][124][125] - Failure to meet public performance guidance could lead to a decline in stock price, and the ability to pay dividends is subject to board discretion, the holding company structure, and Delaware law limitations[126][127] Unresolved Staff Comments The company has no unresolved staff comments as of the reporting period end - The company has no unresolved staff comments[128] Properties The company maintains its headquarters in Beverly Hills, leases various office and warehouse spaces, owns a manufacturing facility in Atlanta, and operates 126 company-owned restaurants, mostly on leased properties, as of December 25, 2022 - Company Headquarters: Located in Beverly Hills, California, leasing approximately 13,000 square feet until September 29, 2025, and an additional 3,000 square feet until February 29, 2024[129] - GFG Management, LLC: Leases approximately 16,000 square feet of warehouse space in Atlanta until May 31, 2024[130] - GAC Supply, LLC: Owns and operates an approximately 40,000 square foot manufacturing and production facility in Atlanta, supplying cookie dough, pretzel mix, and other ancillary products[131] - Twin Restaurant Holding, LLC: Leases approximately 8,300 square feet of office space in Dallas until April 30, 2025[132] - Fazoli's Holdings, LLC: Leases approximately 19,200 square feet of office space in Lexington, Kentucky, until April 30, 2027[132] - Native Grill & Wings Franchising, LLC: Leases 5,825 square feet of office space in Chandler, Arizona, until October 31, 2024 (subleased)[133] - Company-Owned Restaurants: As of December 25, 2022, the company operates 126 company-owned restaurants, predominantly on leased properties with lease terms ranging from 1 month to 23.9 years[133] - The company believes its existing facilities are in good condition and sufficient to meet current and foreseeable business needs[134] Legal Proceedings The company is involved in multiple legal proceedings, including shareholder derivative lawsuits, a securities class action settlement, government investigations into the company and its CEO, environmental litigation, and indemnity lawsuits, with $5.1 million reserved for specific matters and franchisee claims as of December 25, 2022 - Shareholder Derivative Lawsuit (James Harris and Adam Vignola v. Squire Junger et al., Case No. 2021-0511): Filed June 10, 2021, alleging breach of fiduciary duty, unjust enrichment, and corporate asset waste by board members in the December 2020 merger with Fog Cutter Capital Group, Inc. The court denied defendants' motion to dismiss on February 11, 2022, and approved a six-month stay motion by the Special Litigation Committee on February 17, 2023. The company is responsible for directors' defense costs, which may exceed insurance coverage[135][136] - Shareholder Derivative Lawsuit (James Harris and Adam Vignola v. Squire Junger et al., Case No. 2022-0254): Filed March 17, 2022, alleging breach of fiduciary duty by board members in the June 2021 recapitalization transaction. A motion to dismiss is pending. The company is responsible for directors' defense costs, which may exceed insurance coverage[138] - Securities Class Action (Robert J. Matthews et al. v. FAT Brands, Inc. et al., Case No. 2:22-cv-01820): Filed March 18, 2022, alleging false and misleading statements in SEC reports by the company and its executives, leading to inflated stock prices. The company reached an agreement in principle in August 2022 to settle for $2.5 million in cash and $0.5 million in Class A common stock, with preliminary court approval on November 8, 2022, and a final approval hearing scheduled for February 28, 2023[139][140] - Government Investigations: In December 2021, the U.S. Attorney's Office and the SEC initiated investigations into the company and its CEO, Andrew Wiederhorn, concerning the December 2020 merger with Fog Cutter Capital Group Inc., related transactions, and the CEO's and his family's compensation and benefits. The company's Board has formed a Special Review Committee to oversee the investigations, and the company is cooperating, currently believing it is not a target of the U.S. Attorney's investigation[141] - Environmental Litigation (Stratford Holding LLC v. Foot Locker Retail Inc., Case No. 5:12-cv-00772-HE): Filed in 2012 and 2013, concerning environmental contamination from dry-cleaning operations by subsidiary Fog Cutter Acquisition, LLC, with claims ranging from $12 million to $22 million. Fog Cutter denies liability but is in default for failing to respond in a timely manner. Trial is set for October 2023[142] - Indemnity Lawsuit (SBN FCCG LLC v FCCGI, Los Angeles Superior Court, Case No. BS172606): SBN FCCG LLC filed an indemnity lawsuit against Fog Cutter Capital Group, Inc., regarding a lease portfolio managed by a former subsidiary. SBN obtained a $0.7 million judgment in 2018, and the parties agreed to settle for $0.6 million in 2019, with $0.1 million paid and $0.5 million outstanding[143] - Indemnity Lawsuit (SBN FCCG LLC v FCCGI, Supreme Court of the State of New York, County of New York, Index No. 650197/2023): SBN filed another indemnity lawsuit on January 13, 2023, claiming approximately $12 million related to a former subsidiary's lease portfolio and bankruptcy proceedings. FCCG has not yet been served[143] - As of December 25, 2022, the company has accrued $5.1 million in reserves for these specific matters and franchisee-related claims[144][459] Mine Safety Disclosures This item is not applicable - This item is not applicable[145] PART II This section details the market for the company's common equity, related shareholder matters, management's discussion and analysis of financial condition, and disclosures regarding controls and procedures Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A and Class B common stock trade on Nasdaq, with 15,316,720 Class A and 1,270,805 Class B shares outstanding as of February 17, 2023, and the company redeemed 1,821,831 Series B cumulative preferred shares in October 2022 - Class A Common Stock Ticker: FAT[3] - Class B Common Stock Ticker: FATBB[3] - Trading Market: Nasdaq Capital Market[3] Outstanding Shares (as of February 17, 2023) | Stock Class | Number of Outstanding Shares | | :--- | :--- | | Class A Common Stock | 15,316,720 shares | | Class B Common Stock | 1,270,805 shares | - Future dividend payments are at the discretion of the Board of Directors, dependent on the company's operating results, financial condition, capital levels, and cash needs[149] Equity Compensation Plan Information (as of December 25, 2022) | Plan Category | Number of Options, Warrants, and Rights Outstanding | Weighted-Average Exercise Price of Options, Warrants, and Rights Outstanding | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | | :--- | :--- | :--- | :--- | | Equity Compensation Plans Approved by Security Holders | 2,748,906 | $10.06 | 2,101,094 | | Equity Compensation Plans Not Approved by Security Holders | — | — | — | | Total | 2,748,906 | $10.06 | 2,101,094 | - The company has no plans to repurchase common or preferred stock. On October 21, 2022, the company redeemed 1,821,831 shares of 8.25% Series B cumulative preferred stock for $46.5 million in secured debt ($43.2 million net of original issue discount) through an exchange agreement with Twin Peaks sellers[155][156] - In fiscal year 2022, the company issued 4,761 unregistered shares of Class A common stock to a director in lieu of cash compensation, at a weighted-average price of $6.30 per share[157] RESERVED This item is reserved - This item is reserved[158] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operating results as of December 25, 2022, reporting $407.2 million in total revenue and a $126.2 million net loss, driven by acquisitions and increased costs, while addressing liquidity, capital resources, and critical accounting policies - The COVID-19 pandemic adversely impacted the company's business and franchisees, including restaurant closures, reduced operating hours, staffing difficulties, and supply chain disruptions. While the impact has largely subsided, a resurgence of the pandemic or its variants could still materially affect the company's business, financial condition, and results of operations[158][328] Executive Overview FAT Brands Inc. is a leading multi-brand restaurant franchisor with 17 brands and approximately 2,300 locations as of December 25, 2022, primarily operating an asset-light franchise model focused on acquisitions and brand expansion - FAT Brands Inc. is a leading multi-brand restaurant franchisor, with 17 restaurant brands and approximately 2,300 locations (including under development) as of December 25, 2022, with approximately 95% franchised. The company operates an asset-light franchise model, generating revenue primarily from royalties and franchise fees, with acquisitions and existing brand expansion as key growth strategies[160][161][162] Consolidated Results of Operations (2022 vs 2021) | Metric (in thousands) | December 25, 2022 | December 26, 2021 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Revenue | | | | | | Royalties | $87,921 | $42,658 | $45,263 | 106.1% | | Franchise fees | $3,706 | $4,023 | $(317) | -7.9% | | Advertising fees | $37,997 | $16,728 | $21,269 | 127.1% | | Restaurant sales | $241,001 | $41,563 | $199,438 | 479.9% | | Factory revenue | $33,504 | $13,470 | $20,034 | 148.7% | | Management fees and other revenue | $3,095 | $439 | $2,656 | 605.0% | | Total Revenue | $407,224 | $118,881 | $288,343 | 242.6% | | Costs and Expenses | | | | | | General and administrative expenses | $113,313 | $41,775 | $71,538 | 171.2% | | Cost of restaurant and factory revenue | $221,627 | $44,242 | $177,385 | 400.9% | | Depreciation and amortization | $27,015 | $8,474 | $18,541 | 218.8% | | Goodwill and other intangible asset impairment | $14,000 | $1,037 | $12,963 | 1250.1% | | Loss on refranchising | $4,178 | $314 | $3,864 | 1230.6% | | Acquisition expenses | $383 | $4,242 | $(3,859) | -91.0% | | Advertising expenses | $44,612 | $17,973 | $26,639 | 148.2% | | Total Costs and Expenses | $425,128 | $118,057 | $307,071 | 260.1% | | Operating (Loss) Income | $(17,904) | $824 | $(18,728) | -2272.8% | | Other expenses, net | $(89,474) | $(35,944) | $(53,530) | 148.9% | | Loss before income taxes | $(107,378) | $(35,120) | $(72,258) | 205.7% | | Income tax provision (benefit) | $18,810 | $(3,537) | $22,347 | -631.8% | | Net Loss | $(126,188) | $(31,583) | $(94,605) | 300.0% | - Net Loss: Fiscal year 2022 net loss of $126.2 million, a significant increase from $31.6 million in fiscal year 2021, primarily due to a $288.3 million increase in revenue offset by a $307.1 million increase in costs and expenses, and a $53.5 million increase in other expenses[168][169] - Revenue Growth: Total revenue increased by $288.3 million from $118.9 million in 2021 to $407.2 million in 2022, primarily driven by 2021 acquisitions and the continued recovery of royalties post-COVID-19[170][171] - Increased Costs and Expenses: Total costs and expenses increased from $118.1 million in 2021 to $425.1 million in 2022, primarily due to 2021 acquisitions, increased compensation costs from organizational expansion, professional fees related to litigation and government investigations, operating costs for company-owned restaurants and the dough factory, depreciation and amortization, and goodwill and intangible asset impairment[172][173][174] - Other Expenses: Fiscal year 2022 other expenses, net, were $89.5 million, primarily comprising $94.8 million in net interest expense. Fiscal year 2021 saw $35.9 million in other expenses, primarily including $29.1 million in net interest expense and $7.6 million in net loss on debt extinguishment[175] - Income Tax: Fiscal year 2022 income tax provision was $18.8 million, compared to an income tax benefit of $3.5 million in fiscal year 2021, reflecting changes in loss before income taxes[176] Liquidity and Capital Resources The company's liquidity relies on cash, borrowings, and operating cash flow, facing $171.3 million in negative working capital as of December 25, 2022, but expects to meet future needs through existing resources and capital market financing, primarily funding acquisitions via whole business securitization - The company's liquidity primarily relies on cash, borrowings, and operating cash flow. Global franchise expansion and future acquisitions require significant capital investment, potentially necessitating additional debt or equity financing. As of December 25, 2022, the company faced $171.3 million in negative working capital but anticipates meeting liquidity needs for the next 12 months through existing cash, operating cash flow, and capital market financing[177][178][179][180][329] Cash and Restricted Cash (in thousands) | Metric | December 25, 2022 | December 26, 2021 | | :--- | :--- | :--- | | Total Cash and Restricted Cash | $68,763 | $99,921 | - The company funds acquisitions and operations through whole business securitization by issuing notes via four special purpose, wholly-owned financing subsidiaries, with total outstanding debt of $1.0 billion as of December 25, 2022[74][182] - FAT Brands Royalty I, LLC (FB Royalty) Securitization: Issued $144.5 million in fixed-rate senior secured notes on April 26, 2021, to repay 2020 notes and supplement working capital. An additional $76.5 million in notes was issued on July 6, 2022, with $30 million privately sold and $46.5 million used to redeem Series B cumulative preferred stock[183][184] - FAT Brands GFG Royalty I, LLC (GFG Royalty) Securitization: Issued $350 million in fixed-rate senior secured notes on July 22, 2021, primarily for the GFG acquisition. An additional $113.5 million in notes was authorized on December 15, 2022, with $25 million privately sold, $88.5 million issued to FAT Brands Inc. and eliminated in consolidation, and another $40 million privately sold in January 2023[185][188][189] - FAT Brands Twin Peaks I, LLC Securitization: Issued $250 million in fixed-rate secured notes on October 1, 2021, for the Twin Peaks acquisition[190] - FAT Brands Fazoli's Native I, LLC Securitization: Issued $193.8 million in fixed-rate secured notes on December 15, 2021, for the Fazoli's and Native Grill & Wings acquisitions and working capital[191][192] - Series B Cumulative Preferred Stock Issuance: Raised $8.3 million and $16.8 million in net proceeds through public offerings on June 22 and November 1, 2021, respectively[194] - ATM Sales Agreement: Entered into an agreement with ThinkEquity LLC on November 14, 2022, to periodically sell up to $21,435,000 of Class A common stock and/or Series B cumulative preferred stock. In Q4 2022 and the fiscal year, 1,648 shares of Class A common stock and 30,683 shares of Series B cumulative preferred stock were sold through this agreement, generating net proceeds of $11,260 and $539,698, respectively[195][196] Cash Flow Comparison (in thousands) | Cash Flow Category | December 25, 2022 | December 26, 2021 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(47,399) | $682 | | Net Cash Used in Investing Activities | $(12,497) | $(723,200) | | Net Cash Provided by Financing Activities | $28,738 | $815,228 | | Net (Decrease) Increase in Cash and Restricted Cash | $(31,158) | $92,710 | - Operating Activities: Net cash used increased by $48.1 million in 2022, primarily due to higher securitization debt service costs and changes in working capital[199] - Investing Activities: Net cash used was $12.5 million in 2022, primarily for property and equipment purchases for company-owned restaurants. In 2021, it was $723.2 million, mainly for the acquisitions of GFG, Twin Peaks, Fazoli's, and Native Grill & Wings[200] - Financing Activities: Net cash provided was $28.7 million in 2022, primarily from proceeds from borrowings, partially offset by common and preferred stock dividend payments. In 2021, it was $815.2 million, mainly from whole business securitization and Series B cumulative preferred stock issuances, net of $93.3 million in debt repayments[201][202] Common Stock Dividends (Fiscal Year 2022) | Declaration Date | Dividend Per Share | Record Date | Payment Date | Total Dividends (million USD) | | :--- | :--- | :--- | :--- | :--- | | January 11, 2022 | $0.13 | February 15, 2022 | March 1, 2022 | $2.2 | | April 12, 2022 | $0.13 | May 16, 2022 | June 1, 2022 | $2.1 | | July 12, 2022 | $0.14 | August 16, 2022 | September 1, 2022 | $2.3 | | October 25, 2022 | $0.14 | November 15, 2022 | December 1, 2022 | $2.3 | - As of December 25, 2022, the company had no significant capital expenditure commitments[204] Critical Accounting Policies and Estimates This section outlines the company's critical accounting policies and estimates for franchise fees, royalties, advertising, goodwill and intangible asset impairment, assets held for sale, income taxes, and equity-based compensation - Franchise Fees: Recognized as a single performance obligation and revenue is recognized on a straight-line basis over the term of the franchise agreement. Unamortized non-refundable deposits are recorded as deferred franchise fees[205] - Royalties: Collected as a percentage of franchisees' net sales and recognized as revenue when the related sales occur[206] - Advertising: Franchisees are charged advertising fees based on net sales, and advertising funds are also received from suppliers. Advertising revenue and related expenses are presented gross in the consolidated statements of operations[207] - Goodwill and Other Intangible Assets: Goodwill and indefinite-lived intangible assets (e.g., trademarks) are not amortized but are reviewed annually for impairment. Impairment charges of $14 million and $1 million were recorded in 2022 and 2021, respectively[208] - Assets Held for Sale: When the company commits to selling an asset and specific conditions are met, it is classified as held for sale, measured at the lower of its carrying amount or fair value less costs to sell, and depreciation ceases[209] - Income Taxes: Income taxes are accounted for using the balance sheet method, with deferred tax assets and liabilities determined based on differences between financial and tax reporting. Realization of deferred tax assets depends on future earnings, and a valuation allowance is provided as needed[210][211] - Equity-Based Compensation: Operates a stock option plan, with options granted to employees and directors recognized as expense over the vesting period based on their grant-date fair value. The Black-Scholes option pricing model is used to estimate fair value[212][213] - Use of Estimates: The preparation of financial statements requires management to make estimates and assumptions affecting assets, liabilities, revenues, and expenses[214] Recently Issued Accounting Standards The company has adopted new accounting standards, including ASU 2016-13, ASU 2019-10, and ASU 2022-02, but anticipates no significant impact on its consolidated financial statements - ASU 2016-13 (Financial Instruments—Credit Losses): Replaces the existing incurred loss impairment method, requiring entities to recognize an allowance for expected credit losses at initial recognition and each reporting period. As a Smaller Reporting Company (SRC), the company deferred adoption until fiscal years beginning after December 15, 2022, and expects no significant impact on its consolidated financial statements[215] - ASU 2019-10 (Financial Instruments—Credit Losses, Derivatives and Hedging, Leases): Adjusted the effective dates for major accounting standards, allowing SRCs to defer adoption of ASU 2016-13[216] - ASU 2022-02 (Financial Instruments—Credit Losses: Troubled Debt Restructurings and Vintage Disclosures): Enhances disclosure requirements for certain loan refinancings and restructurings and mandates disclosure of current period gross write-offs by original year. Effective for fiscal years beginning after December 15, 2022, and is not expected to have a material impact on the consolidated financial statements[217] Off-Balance Sheet Arrangements As of December 25, 2022, the company has no off-balance sheet arrangements - As of December 25, 2022, the company has no off-balance sheet arrangements[218] Quantitative and Qualitative Disclosures about Market Risk This item does not require disclosure - This item does not require disclosure[219] Financial Statements and Supplementary Data Financial statements and supplementary data are provided in Part IV, Item 15 of this annual report on Form 10-K - Financial statements and supplementary data are provided in Part IV, Item 15 of this annual report on Form 10-K[220] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company has not experienced any changes in accountants nor any disagreements with its accountants regarding accounting principles, practices, or financial statement disclosures - The company has not experienced any changes in accountants nor any disagreements with its accountants regarding accounting principles, practices, or financial statement disclosures[221] Controls and Procedures Management, including the CEO and CFO, assessed the effectiveness of disclosure controls and procedures as of the reporting period end, concluding they are effective at a reasonable assurance level, with no material changes to internal control over financial reporting during the period - Evaluation of Disclosure Controls and Procedures: As of the end of the period covered by this annual report, the company's management, including the CEO and CFO, evaluated and concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level[222][223] - Management's Annual Report on Internal Control Over Financial Reporting: Management is responsible for establishing and maintaining adequate internal control over financial reporting and assessed its effectiveness based on the COSO framework (2013), concluding it was effective as of December 25, 2022[224][225] - Changes in Internal Control: No changes in internal control over financial reporting occurred during the period that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[226][227] Other Information On February 21, 2023, the Board approved an amendment to Section 3.05 of the company's bylaws to reflect the declassification of the Board completed in December 2022, modifying director term descriptions - On February 21, 2023, the Board approved an amendment to Section 3.05 of the company's bylaws to correctly reflect the declassification of the Board completed in December 2022, modifying director term descriptions[228] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - This item is not applicable[229] PART III This section provides information on the company's directors, executive officers, corporate governance, executive compensation, security ownership of certain beneficial owners and management, related party transactions, and principal accounting fees Directors, Executive Officers and Corporate Governance This section lists the company's directors and executive officers as of December 25, 2022, detailing their business experience, family relationships, and outlines the company's code of business conduct and the composition of its independent board committees Directors and Executive Officers (as of December 25, 2022) | Name | Age | Position | | :--- | :--- | :--- | | Andrew A. Wiederhorn | 56 | President and Chief Executive Officer, Director | | James Neuhauser | 64 | Executive Chairman of the Board | | Kenneth J. Anderson | 68 | Director | | Lynne L. Collier | 55 | Director | | Amy V. Forrestal | 57 | Director | | Edward H. Rensi | 78 | Director | | Kenneth J. Kuick | 54 | Chief Financial Officer | | Thayer D. Wiederhorn | 34 | Chief Operating Officer | | Taylor A. Wiederhorn | 34 | Chief Development Officer | | Robert G. Rosen | 56 | Executive Vice President, Capital Markets | | Allen Z. Sussman | 58 | Executive Vice President, General Counsel, and Secretary | | Ron Roe | 45 | Senior Vice President, Finance | - Andrew A. Wiederhorn: President and CEO since the company's inception in March 2017, previously Chairman and CEO of former parent company Fog Cutter Capital Group Inc[233][234] - James Neuhauser: Director since the company's inception in 2017, became Executive Chairman in July 2022, with extensive experience in private capital markets and investment banking[235] - Kenneth J. Anderson: Director since October 2021, with over 35 years of experience providing financial strategies to families, corporate executives, and business owners, a Certified Public Accountant and practicing attorney[236] - Lynne L. Collier: Director since July 2022, with nearly 30 years of experience in capital markets and the restaurant industry, previously Head of Consumer Discretionary at Water Tower Research, LLC[237] - Amy V. Forrestal: Director since October 2021, a seasoned executive and investment banker in the restaurant and franchise industries, currently Managing Director at Brookwood Associates[238] - Edward H. Rensi: Director since the company's inception in March 2017, transitioned to Vice Chairman and Lead Independent Director in July 2022, previously President and CEO of McDonald's USA[239] - Kenneth J. Kuick: CFO since May 31, 2021, previously CFO or Chief Accounting Officer at Noodles & Company and VICI Properties Inc[240] - Thayer D. Wiederhorn: COO since November 2021, responsible for day-to-day business operations, previously CMO[241] - Taylor A. Wiederhorn: CDO since October 2017, previously Vice President of Franchise Marketing and Development for Fatburger North America[242] - Robert G. Rosen: Executive Vice President, Capital Markets, since April 2021, with extensive experience in commercial banking, structured finance, and investment banking[243] - Allen Z. Sussman: General Counsel and Executive Vice President of Corporate Development and Corporate Secretary since March 2021, previously a partner at Loeb & Loeb LLP[244][245] - Ron Roe: Currently Senior Vice President of Finance, previously served as CFO and Vice President of Finance[246] - Andrew Wiederhorn's Family Members: Sons Thayer Wiederhorn (COO), Taylor Wiederhorn (CDO), and Mason Wiederhorn (Creative Director) all hold senior positions within the company and receive cash compensation and equity incentives[247] - Section 16(a) Reporting Delinquencies: In fiscal year 2022, Squire Junger, Taylor Wiederhorn, Kenneth Anderson, and Lynne Collier had delinquent Section 16(a) filings[247] - The company has adopted a written Code of Business Conduct applicable to all directors, officers, and employees, which is published on the company's website[248][249] - Board Meetings: The Board of Directors held 43 meetings in fiscal year 2022, with each director attending at least 75% of the Board and committee meetings[250] - Audit Committee: Responsible for appointing and overseeing the independent registered public accounting firm, reviewing financial reporting processes, accounting principles, and internal controls. All members meet the definitions of independent directors and "audit committee financial experts"[251][252] - Compensation Committee: Responsible for reviewing and recommending compensation for the CEO, other executive officers, and outside directors to the Board, administering equity incentive plans, and conducting CEO performance evaluations[253][254] - Nominating and Corporate Governance Committee: Responsible for identifying qualified board candidates, reviewing the qualifications and performance of existing directors, and considering matters related to board composition[255][256] Executive Compensation This section details the compensation for the company's three highest-paid executives for fiscal years 2022 and 2021, including Andrew A. Wiederhorn's employment agreement, and outlines the compensation structure for non-employee directors, which combines cash and equity incentives Summary Compensation Table (in thousands) | Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Andrew A. Wiederhorn | 2022 | 750,000 | 2,250,000 | — | — | 551,040 | 3,551,040 | | Chief Executive Officer | 2021 | 546,615 | 1,500,000 | — | 607,000 | 221,294 | 2,874,909 | | Robert G. Rosen | 2022 | 550,000 | 1,650,000 | — | — | — | 2,200,000 | | Executive Vice President, Capital Markets | 2021 | 395,866 | 480,000 | 857,000 | 607,000 | — | 2,339,866 | | Taylor A. Wiederhorn | 2022 | 550,000 | 1,110,000 | — | — | — | 1,660,000 | | Chief Development Officer | 2021 | 480,000 | 480,000 | — | 607,000 | — | 1,567,000 | - Andrew A. Wiederhorn Employment Agreement: Three-year term (effective July 1, 2021), automatically renewable for two years. Annual base salary of $0.75 million, subject to discretionary increases. Eligible for an annual discretionary bonus of up to 300% of base salary. Eligible for equity awards. Upon change of control or termination without cause, unvested equity awards fully vest, and he is entitled to 12 months of base salary as severance. Entitled to benefit plans, private aircraft use for business travel, and up to 100 hours annually for personal private aircraft use[262][263][264][265][266] - Other Executive Officers: The company has no written employment agreements with any employees other than Andrew A. Wiederhorn[266] Outstanding Equity Awards at Fiscal Year-End 2022 | Name | Number of Securities Underlying Exercisable Options () | Number of Securities Underlying Unexercisable Options () | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested () | Market Value of Shares or Units of Stock That Have Not Vested ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Andrew A. Wiederhorn | 15,318 | — | 10.68 | October 20, 2027 | — | — | | | 15,318 | — | 4.80 | December 10, 2028 | — | — | | | 33,334 | 66,666 | 11.43 | November 16, 2031 | — | — | | Robert G. Rosen | 33,334 | 66,666 | 11.43 | November 16, 2031 | 100,000 | 552,000 | | Taylor A. Wiederhorn | 15,318 | — | 10.68 | October 20, 2027 | — | — | | | 15,318 | — | 4.80 | December 10, 2028 | — | — | | | 33,334 | 66,666 | 11.43 | November 16, 2031 | — | — | - No named executive officers acquired company stock through option exercises in 2022[270] - Compensation Structure: The company uses a combination of cash and equity incentives to attract and retain qualified directors[272] - Annual Compensation: Each non-employee director receives an $80,000 annual cash retainer, an additional $40,000 for board committee service, and an annual stock option award for 30,636 shares of common stock[273] - Restricted Stock Awards: In fiscal year 2022, directors also received a one-time restricted stock award of 10,000 shares of Class A common stock, vesting over two years[274] - Cash Compensation Election: Independent directors may elect to receive a portion of their cash compensation in Class A common stock. In 2022, independent directors elected to receive 4,761 shares of Class A common stock at a weighted-average price of $6.30 per share[275] Non-Employee Directors and Executive Chairman Compensation Table (Fiscal Year 2022, in thousands) | Name | Cash Compensation ($) | Stock Awards ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Edward H. Rensi | 120,000 | 88,500 | 88,982 | 297,482 | | Kenneth A. Anderson | 90,000 | 88,500 | 88,982 | 267,482 | | Lynne L. Collier | 60,000 | 88,500 | 88,982 | 237,482 | | Amy V. Forrestal | 120,000 | 88,500 | 88,982 | 297,482 | | Squire Junger | 120,000 | 88,500 | 88,982 | 297,482 | | James Neuhauser | 807,500 | 853,500 | — | 1,661,000 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details the beneficial ownership of the company's Class A and Class B common stock and Series B cumulative preferred stock as of February 23, 2023, highlighting Fog Cutter Holdings LLC as the largest common stock beneficial owner with approximately 55.5% of total voting power Beneficial Ownership of Common Stock (as of February 23, 2023) | Name of Beneficial Owner | Amount of Class A Common Stock | Percent of Class A Common Stock (%) | Amount of Class B Common Stock | Percent of Class B Common Stock (%) | Percent of Total Voting Power (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | Greater Than 5% Shareholders | | | | | | | Fog Cutter Holdings LLC | 7,033,397 | 45.9 | 706,514 | 55.6 | 55.5 | | HOT GFG LLC | 2,259,594 | 14.8 | — | * | * | | Geode Capital Holdings LLC | — | * | 77,586 | 6.1 | 6.1 | | Gregory Fortunoff and certain persons | 1,024,939 | 6.6 | — | * | * | | Named Executive Officers and Directors | | | | | | | Andrew A. Wiederhorn | 226,449 | 1.5 | 5,333 | * | * | | Robert G. Rosen | 133,333 | * | 10,000 | * | * | | Taylor A. Wiederhorn | 220,678 | 1.4 | 14,989 | 1.2 | 1.2 | | Kenneth J. Anderson | 176,620 | 1.2 | 16,353 | 1.3 | 1.3 | | Lynne L. Collier | 10,000 | * | — | 0.0 | * | | Amy V. Forrestal | 24,113 | * | — | * | * | | James Neuhauser | 294,627 | 1.9 | 8,803 | * | * | | Edward Rensi | 120,132 | * | 3,354 | * | * | | All Directors and Executive Officers as a Group (12 persons) | 1,901,878 | 16.2 | 111,136 | 8.7 | 8.8 | *indicates beneficial ownership of less than 1% Beneficial Ownership of Series B Cumulative Preferred Stock (as of February 23, 2023) | Name of Beneficial Owner | Amount of Series B Cumulative Preferred Stock | Percent (%) | | :--- | :--- | :--- | | Named Executive Officers and Directors | | | | Andrew A. Wiederhorn | — | * | | Robert G. Rosen | 232 | * | | Taylor A. Wiederhorn | — | * | | Kenneth J. Anderson | 11,681 | * | | Lynne L. Collier | — | * | | Amy V. Forrestal | — | * | | James Neuhauser | — | * | | Edward Rensi | 7,781 | * | | All Directors and Executive Officers as a Group (12 persons) | 25,189 | * | *indicates beneficial ownership of less than 1% Certain Relationships and Related Transactions, and Director Independence Fog Cutter Holdings LLC controls approximately 55.5% of the company's voting power, and the CEO's sons hold senior positions, while the Board has determined all current directors, except Andrew Wiederhorn and James Neuhauser, are independent - Fog Cutter Holdings LLC beneficially owns approximately 55.5% of the company's common stock voting power[289] - The company's CEO, Andrew Wiederhorn, has sons (Thayer Wiederhorn, Taylor Wiederhorn, Mason Wiederhorn) who also hold senior positions within the company[290][247] - The Board has determined that all current directors, except Andrew Wiederhorn and James Neuhauser, are independent, and all committee members also meet independence standards[291] Principal Accounting Fees and Services Baker Tilly US, LLP serves as the company's independent registered public accounting firm, with $1.068 million in audit fees and $0.215 million in audit-related fees for fiscal year 2022, all pre-approved by the Audit Committee Summary of Accounting Fees (in thousands) | Fee Category | December 25, 2022 | December 26, 2021 | | :--- | :--- | :--- | | Audit Fees | $1,068 | $1,128 | | Audit-Related Fees | $215 | $418 | | Other Fees | $— | $— | - The Audit Committee annually reviews the independence of the independent registered public accounting firm and pre-approves all audit and permissible non-audit services[292] PART IV This section presents the company's audited consolidated financial statements, including the independent registered public accounting firm's report, balance sheets, statements of operations, statements of changes in stockholders' equity, cash flow statements, and notes to financial statements, along with a comprehensive exhibit list Exhibits, Financial Statement Schedules This section includes the company's audited consolidated financial statements for fiscal years 2022 and 2021, along with an exhibit list containing key corporate documents - Audited Consolidated Financial Statements: * Independent Registered Public Accounting Firm's Report (PCAOB ID 32) * Consolidated Balance Sheets as of December 25, 2022, and December 26, 2021 * Consolidated Statements of Operations for the Fiscal Years Ended December 25, 2022, and December 26, 2021 * Consolidated Statements of Changes in Stockholders' Equity for the Fiscal Years Ended December 25, 2022, and December 26, 2021 * Consolidated Statements of Cash Flows for the Fiscal Years Ended December 25, 2022, and December 26, 2021 * Notes to Consolidated Financial Statements[295] - The exhibit list provides important corporate documents such as the company's bylaws, guarantee agreements, and employment agreements, some of which are incorporated by reference[295][476][477][478][479][480][481][482] Form 10-K Summary This item is not applicable - This item is not applicable[470]