Try our mobile app

Published: 2023-08-01 16:55:20 ET
<<<  go to DENN company page
denn-20230628
0000852772--12-272023Q2false00008527722022-12-292023-06-2800008527722023-07-27xbrli:shares00008527722023-06-28iso4217:USD00008527722022-12-28iso4217:USDxbrli:shares0000852772us-gaap:FranchisorOwnedOutletMember2023-03-302023-06-280000852772us-gaap:FranchisorOwnedOutletMember2022-03-312022-06-290000852772us-gaap:FranchisorOwnedOutletMember2022-12-292023-06-280000852772us-gaap:FranchisorOwnedOutletMember2021-12-302022-06-290000852772us-gaap:FranchiseMember2023-03-302023-06-280000852772us-gaap:FranchiseMember2022-03-312022-06-290000852772us-gaap:FranchiseMember2022-12-292023-06-280000852772us-gaap:FranchiseMember2021-12-302022-06-2900008527722023-03-302023-06-2800008527722022-03-312022-06-2900008527722021-12-302022-06-290000852772us-gaap:CommonStockMember2023-03-290000852772us-gaap:TreasuryStockCommonMember2023-03-290000852772us-gaap:AdditionalPaidInCapitalMember2023-03-290000852772us-gaap:RetainedEarningsMember2023-03-290000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-2900008527722023-03-290000852772us-gaap:RetainedEarningsMember2023-03-302023-06-280000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-302023-06-280000852772us-gaap:AdditionalPaidInCapitalMember2023-03-302023-06-280000852772us-gaap:TreasuryStockCommonMember2023-03-302023-06-280000852772us-gaap:CommonStockMember2023-03-302023-06-280000852772us-gaap:CommonStockMember2023-06-280000852772us-gaap:TreasuryStockCommonMember2023-06-280000852772us-gaap:AdditionalPaidInCapitalMember2023-06-280000852772us-gaap:RetainedEarningsMember2023-06-280000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-06-280000852772us-gaap:CommonStockMember2022-03-300000852772us-gaap:TreasuryStockCommonMember2022-03-300000852772us-gaap:AdditionalPaidInCapitalMember2022-03-300000852772us-gaap:RetainedEarningsMember2022-03-300000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-3000008527722022-03-300000852772us-gaap:RetainedEarningsMember2022-03-312022-06-290000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-312022-06-290000852772us-gaap:AdditionalPaidInCapitalMember2022-03-312022-06-290000852772us-gaap:TreasuryStockCommonMember2022-03-312022-06-290000852772us-gaap:CommonStockMember2022-03-312022-06-290000852772us-gaap:CommonStockMember2022-06-290000852772us-gaap:TreasuryStockCommonMember2022-06-290000852772us-gaap:AdditionalPaidInCapitalMember2022-06-290000852772us-gaap:RetainedEarningsMember2022-06-290000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-2900008527722022-06-290000852772us-gaap:CommonStockMember2022-12-280000852772us-gaap:TreasuryStockCommonMember2022-12-280000852772us-gaap:AdditionalPaidInCapitalMember2022-12-280000852772us-gaap:RetainedEarningsMember2022-12-280000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-280000852772us-gaap:RetainedEarningsMember2022-12-292023-06-280000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-292023-06-280000852772us-gaap:AdditionalPaidInCapitalMember2022-12-292023-06-280000852772us-gaap:TreasuryStockCommonMember2022-12-292023-06-280000852772us-gaap:CommonStockMember2022-12-292023-06-280000852772us-gaap:CommonStockMember2021-12-290000852772us-gaap:TreasuryStockCommonMember2021-12-290000852772us-gaap:AdditionalPaidInCapitalMember2021-12-290000852772us-gaap:RetainedEarningsMember2021-12-290000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-2900008527722021-12-290000852772us-gaap:RetainedEarningsMember2021-12-302022-06-290000852772us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-302022-06-290000852772us-gaap:AdditionalPaidInCapitalMember2021-12-302022-06-290000852772us-gaap:TreasuryStockCommonMember2021-12-302022-06-290000852772us-gaap:CommonStockMember2021-12-302022-06-29denn:restaurant0000852772us-gaap:FranchisedUnitsMember2023-06-280000852772us-gaap:EntityOperatedUnitsMember2023-06-280000852772denn:DennysBrandMember2023-06-280000852772denn:DennysBrandMemberus-gaap:FranchisedUnitsMember2023-06-280000852772us-gaap:EntityOperatedUnitsMemberdenn:DennysBrandMember2023-06-280000852772denn:KekesBreakfastCafeMember2023-06-280000852772denn:KekesBreakfastCafeMemberus-gaap:FranchisedUnitsMember2023-06-280000852772us-gaap:EntityOperatedUnitsMemberdenn:KekesBreakfastCafeMember2023-06-280000852772denn:VendorReceivablesMember2023-06-280000852772denn:VendorReceivablesMember2022-12-280000852772us-gaap:CreditCardReceivablesMember2023-06-280000852772us-gaap:CreditCardReceivablesMember2022-12-280000852772denn:OtherReceivablesMember2023-06-280000852772denn:OtherReceivablesMember2022-12-280000852772us-gaap:CorporateMember2023-06-280000852772us-gaap:CorporateMember2022-12-280000852772us-gaap:AllOtherSegmentsMember2023-06-280000852772us-gaap:AllOtherSegmentsMember2022-12-280000852772us-gaap:FranchiseRightsMember2023-06-280000852772us-gaap:FranchiseRightsMember2022-12-280000852772denn:FranchiseAgreementsMember2023-06-280000852772denn:FranchiseAgreementsMember2022-12-280000852772us-gaap:FairValueMeasurementsRecurringMember2023-06-280000852772us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2023-06-280000852772us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-06-280000852772us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2023-06-280000852772us-gaap:FairValueMeasurementsRecurringMember2022-12-280000852772us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2022-12-280000852772us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-280000852772us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-12-280000852772us-gaap:FairValueMeasurementsNonrecurringMember2022-12-292023-06-280000852772us-gaap:RevolvingCreditFacilityMember2022-12-292023-06-280000852772us-gaap:RevolvingCreditFacilityMember2023-06-280000852772us-gaap:LetterOfCreditMember2023-06-280000852772us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberus-gaap:RevolvingCreditFacilityMember2022-12-292023-06-28xbrli:pure0000852772us-gaap:RevolvingCreditFacilityMember2022-12-280000852772us-gaap:InterestRateSwapMemberus-gaap:RevolvingCreditFacilityMember2023-06-280000852772us-gaap:InterestRateSwapMemberus-gaap:RevolvingCreditFacilityMember2022-12-280000852772denn:InterestRateSwaps20182025Member2023-06-280000852772denn:InterestRateSwaps20182026Member2023-06-280000852772denn:InterestRateSwap20202033Member2023-06-280000852772srt:MaximumMemberdenn:InterestRateSwap20202033Member2023-06-280000852772srt:MaximumMemberdenn:InterestRateSwap20202033Member2023-03-290000852772denn:InterestRateSwap20202033Member2022-12-292023-06-280000852772denn:EffectiveInterestRateSwapsMember2023-06-280000852772denn:EffectiveInterestRateSwapsMember2022-12-292023-06-280000852772us-gaap:OtherNonoperatingIncomeExpenseMemberdenn:DedesignatedInterestRateSwapsMember2022-12-292023-06-280000852772us-gaap:OtherNonoperatingIncomeExpenseMemberdenn:DedesignatedInterestRateSwapsMember2022-03-312022-06-290000852772us-gaap:OtherNonoperatingIncomeExpenseMemberdenn:DedesignatedInterestRateSwapsMember2021-12-302022-06-290000852772us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMemberdenn:DedesignatedInterestRateSwapsMember2023-06-280000852772denn:AccumulatedGainLossNetCashFlowHedgeUnrealizedLossesMemberdenn:DedesignatedInterestRateSwapsMember2022-12-292023-06-280000852772denn:AccumulatedGainLossNetCashFlowHedgeUnrealizedLossesMemberdenn:DedesignatedInterestRateSwapsMember2023-03-302023-06-280000852772denn:AccumulatedGainLossNetCashFlowHedgeUnrealizedLossesMemberdenn:DedesignatedInterestRateSwapsMember2021-12-302022-06-290000852772denn:AccumulatedGainLossNetCashFlowHedgeUnrealizedLossesMemberdenn:DedesignatedInterestRateSwapsMember2022-03-312022-06-290000852772denn:AccumulatedGainLossNetCashFlowHedgeDedesignationOfAPortionOfInterestRateSwapsMemberdenn:DedesignatedInterestRateSwapsMember2022-12-292023-06-280000852772us-gaap:RoyaltyMember2023-03-302023-06-280000852772us-gaap:RoyaltyMember2022-03-312022-06-290000852772us-gaap:RoyaltyMember2022-12-292023-06-280000852772us-gaap:RoyaltyMember2021-12-302022-06-290000852772us-gaap:AdvertisingMember2023-03-302023-06-280000852772us-gaap:AdvertisingMember2022-03-312022-06-290000852772us-gaap:AdvertisingMember2022-12-292023-06-280000852772us-gaap:AdvertisingMember2021-12-302022-06-290000852772us-gaap:LicenseMember2023-03-302023-06-280000852772us-gaap:LicenseMember2022-03-312022-06-290000852772us-gaap:LicenseMember2022-12-292023-06-280000852772us-gaap:LicenseMember2021-12-302022-06-290000852772us-gaap:OccupancyMember2023-03-302023-06-280000852772us-gaap:OccupancyMember2022-03-312022-06-290000852772us-gaap:OccupancyMember2022-12-292023-06-280000852772us-gaap:OccupancyMember2021-12-302022-06-2900008527722021-12-302022-12-280000852772denn:FranchiseEquipmentProgramsMember2023-03-302023-06-280000852772denn:FranchiseEquipmentProgramsMember2022-12-292023-06-280000852772denn:FranchiseEquipmentProgramsMember2022-03-312022-06-290000852772denn:FranchiseEquipmentProgramsMember2021-12-302022-06-290000852772denn:FranchiseEquipmentProgramsMember2023-06-280000852772denn:KitchenModernizationProgramForFranchiseRestaurantsMember2022-12-280000852772denn:GiftCardRedemptionMember2023-06-280000852772denn:GiftCardRedemptionMember2022-12-280000852772denn:GiftCardRedemptionMember2022-12-292023-06-280000852772us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember2022-12-292023-06-280000852772us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember2023-06-28denn:parcel0000852772us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember2022-12-280000852772us-gaap:PerformanceSharesMember2023-03-302023-06-280000852772us-gaap:PerformanceSharesMember2022-03-312022-06-290000852772us-gaap:PerformanceSharesMember2022-12-292023-06-280000852772us-gaap:PerformanceSharesMember2021-12-302022-06-290000852772us-gaap:RestrictedStockUnitsRSUMember2023-03-302023-06-280000852772us-gaap:RestrictedStockUnitsRSUMember2022-03-312022-06-290000852772us-gaap:RestrictedStockUnitsRSUMember2022-12-292023-06-280000852772us-gaap:RestrictedStockUnitsRSUMember2021-12-302022-06-290000852772denn:CertainEmployeesMemberdenn:PerformanceSharesTotalShareholderReturnMember2022-12-292023-06-280000852772denn:CertainEmployeesMemberdenn:PerformanceSharesAdjustedEPSMember2022-12-292023-06-280000852772denn:CertainEmployeesMemberus-gaap:PerformanceSharesMember2022-12-292023-06-280000852772denn:EmployeeShareAwardsMemberus-gaap:PerformanceSharesMembersrt:MinimumMember2022-12-292023-06-280000852772srt:MaximumMemberdenn:EmployeeShareAwardsMemberus-gaap:PerformanceSharesMember2022-12-292023-06-280000852772us-gaap:RestrictedStockUnitsRSUMemberdenn:CertainEmployeesMember2022-12-292023-06-280000852772denn:PerformanceSharesAndRestrictedStockUnitsMemberdenn:CertainEmployeesMember2022-12-292023-06-280000852772denn:CertainEmployeesMember2023-06-280000852772denn:CertainEmployeesMember2022-12-292023-06-280000852772us-gaap:RestrictedStockUnitsRSUMemberdenn:NonEmployeeMembersOfTheBoardMember2023-03-302023-06-280000852772us-gaap:RestrictedStockUnitsRSUMemberdenn:NonEmployeeMembersOfTheBoardMember2022-12-292023-06-28denn:installment0000852772us-gaap:RestrictedStockUnitsRSUMemberdenn:NonEmployeeMembersOfTheBoardMember2023-06-280000852772denn:ShareRepurchaseProgram2019Member2019-12-250000852772denn:ShareRepurchaseProgram2019Member2022-12-292023-06-280000852772denn:ShareRepurchaseProgram2019Member2023-06-280000852772us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-12-280000852772us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-12-280000852772us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember2022-12-292023-06-280000852772us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-12-292023-06-280000852772denn:AccumulatedGainLossNetCashFlowHedgeUnrealizedLossesMember2022-12-292023-06-280000852772us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-12-292023-06-280000852772us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2023-06-280000852772us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2023-06-28denn:segment0000852772us-gaap:OperatingSegmentsMemberus-gaap:CorporateMember2023-03-302023-06-280000852772us-gaap:OperatingSegmentsMemberus-gaap:CorporateMember2022-03-312022-06-290000852772us-gaap:OperatingSegmentsMemberus-gaap:CorporateMember2022-12-292023-06-280000852772us-gaap:OperatingSegmentsMemberus-gaap:CorporateMember2021-12-302022-06-290000852772us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2023-03-302023-06-280000852772us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2022-03-312022-06-290000852772us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2022-12-292023-06-280000852772us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2021-12-302022-06-290000852772us-gaap:OperatingSegmentsMember2023-03-302023-06-280000852772us-gaap:OperatingSegmentsMember2022-03-312022-06-290000852772us-gaap:OperatingSegmentsMember2022-12-292023-06-280000852772us-gaap:OperatingSegmentsMember2021-12-302022-06-290000852772us-gaap:OperatingSegmentsMemberus-gaap:CorporateMember2023-06-280000852772us-gaap:OperatingSegmentsMemberus-gaap:CorporateMember2022-12-280000852772us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2023-06-280000852772us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2022-12-280000852772us-gaap:OperatingSegmentsMember2023-06-280000852772us-gaap:OperatingSegmentsMember2022-12-28

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________

Commission File Number 0-18051

Dennys.gif

DENNY’S CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3487402
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
203 East Main Street
Spartanburg, South Carolina29319-0001
(Address of principal executive offices)(Zip Code)
(864) 597-8000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s) Name of each exchange on which registered
$.01 Par Value, Common StockDENN The Nasdaq Stock Market LLC
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý No  ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ý  No  ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☐Accelerated FilerýNon-Accelerated Filer☐Smaller Reporting Company☐Emerging Growth Company☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐   No  ý

As of July 27, 2023, 55,464,084 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.


TABLE OF CONTENTS
 
 Page
 
  
 
  
 
  
  
2

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements
 
Denny’s Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
 June 28, 2023December 28, 2022
 (In thousands, except per share amounts)
Assets  
Current assets:  
Cash and cash equivalents$1,130 $3,523 
Investments3,075 1,746 
Receivables, net18,469 25,576 
Inventories2,534 5,538 
Assets held for sale1,551 1,403 
Prepaid and other current assets10,043 12,529 
Total current assets36,802 50,315 
Property, net of accumulated depreciation of $156,690 and $153,334, respectively
91,407 94,469 
Finance lease right-of-use assets, net of accumulated amortization of $9,348 and $9,847, respectively
6,239 6,499 
Operating lease right-of-use assets, net120,136 126,065 
Goodwill72,142 72,740 
Intangible assets, net94,220 95,034 
Deferred financing costs, net2,020 2,337 
Other noncurrent assets42,659 50,876 
Total assets$465,625 $498,335 
Liabilities  
Current liabilities:  
Current finance lease liabilities$1,449 $1,683 
Current operating lease liabilities15,179 15,310 
Accounts payable13,079 19,896 
Other current liabilities56,968 56,762 
Total current liabilities86,675 93,651 
Long-term liabilities:  
Long-term debt247,000 261,500 
Noncurrent finance lease liabilities9,355 9,555 
Noncurrent operating lease liabilities117,218 123,404 
Liability for insurance claims, less current portion7,020 7,324 
Deferred income taxes, net8,937 7,419 
Other noncurrent liabilities32,038 32,598 
Total long-term liabilities421,568 441,800 
Total liabilities508,243 535,451 
Shareholders' deficit  
Common stock $0.01 par value; 135,000 shares authorized; June 28, 2023: 65,708 shares issued and 55,708 outstanding; December 28, 2022: 64,998 shares issued and 56,728 shares outstanding
$657 $650 
Paid-in capital144,506 142,136 
Deficit(32,594)(41,729)
Accumulated other comprehensive loss, net(40,321)(42,697)
Treasury stock, at cost, 10,000 and 8,270 shares, respectively
(114,866)(95,476)
Total shareholders' deficit(42,618)(37,116)
Total liabilities and shareholders' deficit$465,625 $498,335 
See accompanying notes
3

Denny’s Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands, except per share amounts)
Revenue:   
Company restaurant sales$54,881 $49,167 $108,333 $93,143 
Franchise and license revenue62,034 65,850 126,053 124,981 
Total operating revenue116,915 115,017 234,386 218,124 
Costs of company restaurant sales, excluding depreciation and amortization:
    
Product costs14,170 13,168 28,209 24,412 
Payroll and benefits20,488 18,336 40,728 35,422 
Occupancy4,105 3,782 8,199 7,022 
Other operating expenses7,805 9,542 15,924 16,597 
Total costs of company restaurant sales, excluding depreciation and amortization46,568 44,828 93,060 83,453 
Costs of franchise and license revenue, excluding depreciation and amortization30,460 35,265 62,847 65,934 
General and administrative expenses20,160 16,623 40,278 33,581 
Depreciation and amortization3,617 3,590 7,273 7,138 
Operating (gains), losses and other charges, net
1,176 846 (153)846 
Total operating costs and expenses, net
101,981 101,152 203,305 190,952 
Operating income14,934 13,865 31,081 27,172 
Interest expense, net4,402 2,878 8,907 5,838 
Other nonoperating expense (income), net(666)(19,795)9,427 (39,410)
Income before income taxes11,198 30,782 12,747 60,744 
Provision for income taxes2,660 7,779 3,612 15,886 
Net income$8,538 $23,003 $9,135 $44,858 
Net income per share - basic$0.15 $0.37 $0.16 $0.71 
Net income per share - diluted$0.15 $0.37 $0.16 $0.71 
Basic weighted average shares outstanding
56,787 62,306 57,212 62,822 
Diluted weighted average shares outstanding
57,051 62,430 57,423 63,003 
 
See accompanying notes
4

Denny’s Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Net income$8,538 $23,003 $9,135 $44,858 
Other comprehensive income (loss), net of tax:
Minimum pension liability adjustment, net of tax of $4, $7, $26 and $15, respectively
10 22 77 46 
Changes in the fair value of cash flow hedges, net of tax of $975, $613, $1,296 and $2,286, respectively
2,870 1,840 3,812 6,855 
Reclassification of cash flow hedges to interest expense, net of tax of $(313), $180, $(549) and $428, respectively
(922)541 (1,616)1,283 
Amortization of unrealized losses related to interest rate swaps to interest expense, net of tax of $21, $1, $35 and $1, respectively
61 5 103 5 
Other comprehensive income2,019 2,408 2,376 8,189 
Total comprehensive income$10,557 $25,411 $11,511 $53,047 

See accompanying notes
5

Denny’s Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Deficit
For the Quarter Ended June 28, 2023 and June 29, 2022
(Unaudited)
 Common StockTreasury StockPaid-in CapitalDeficitAccumulated
Other
Comprehensive Loss, Net		Total
Shareholders’
Deficit
 SharesAmountSharesAmount
 (In thousands)
Balance, March 29, 202365,468 $655 (9,076)$(104,443)$142,258 $(41,132)$(42,340)$(45,002)
Net income— — — — — 8,538 — 8,538 
Other comprehensive income— — — — — — 2,019 2,019 
Share-based compensation on equity classified awards, net of withholding tax— — — — 2,250 — — 2,250 
Purchase of treasury stock, including excise tax— — (924)(10,423)— — — (10,423)
Issuance of common stock for share-based compensation240 2 — — (2)— — — 
Balance, June 28, 2023
65,708 $657 (10,000)$(114,866)$144,506 $(32,594)$(40,321)$(42,618)

 Common StockTreasury StockPaid-in CapitalDeficitAccumulated
Other
Comprehensive Loss, Net		Total
Shareholders’
Deficit
 SharesAmountSharesAmount
 (In thousands)
Balance, March 30, 202264,457 $645 (2,744)$(42,457)$137,332 $(94,586)$(48,689)$(47,755)
Net income— — — — — 23,003 — 23,003 
Other comprehensive income— — — — — — 2,408 2,408 
Share-based compensation on equity classified awards, net of withholding tax— — — — 1,020 — — 1,020 
Purchase of treasury stock— — (3,910)(37,384)— — — (37,384)
Issuance of common stock for share-based compensation541 5 — — (5)— — — 
Balance, June 29, 2022
64,998 $650 (6,654)$(79,841)$138,347 $(71,583)$(46,281)$(58,708)

See accompanying notes





6

Denny’s Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Deficit
For the Two Quarters Ended June 28, 2023 and June 29, 2022
(Unaudited)

 Common StockTreasury StockPaid-in CapitalDeficitAccumulated
Other
Comprehensive Loss, Net		Total
Shareholders’
Deficit
 SharesAmountSharesAmount
 (In thousands)
Balance, December 28, 202264,998 $650 (8,270)$(95,476)$142,136 $(41,729)$(42,697)$(37,116)
Net income— — — — — 9,135 — 9,135 
Other comprehensive income— — — — — — 2,376 2,376 
Share-based compensation on equity classified awards, net of withholding tax
— — — — 2,377 — — 2,377 
Purchase of treasury stock, including excise tax— — (1,730)(19,390)— — — (19,390)
Issuance of common stock for share-based compensation710 7 — — (7)— — — 
Balance, June 28, 2023
65,708 $657 (10,000)$(114,866)$144,506 $(32,594)$(40,321)$(42,618)

 Common StockTreasury StockPaid-in CapitalDeficitAccumulated
Other
Comprehensive Loss, Net		Total
Shareholders’
Deficit
 SharesAmountSharesAmount
 (In thousands)
Balance, December 29, 202164,200 $642 (1,990)$(30,592)$135,596 $(116,441)$(54,470)$(65,265)
Net income— — — — — 44,858 — 44,858 
Other comprehensive income— — — — — — 8,189 8,189 
Share-based compensation on equity classified awards, net of withholding tax
— — — — 2,759 — — 2,759 
Purchase of treasury stock— — (4,664)(49,249)— — — (49,249)
Issuance of common stock for share-based compensation798 8 — — (8)— — — 
Balance, June 29, 2022
64,998 $650 (6,654)$(79,841)$138,347 $(71,583)$(46,281)$(58,708)

See accompanying notes





7

Denny’s Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 Two Quarters Ended
 June 28, 2023June 29, 2022
 (In thousands)
Cash flows from operating activities:  
Net income$9,135 $44,858 
Adjustments to reconcile net income to cash flows provided by operating activities:  
Depreciation and amortization7,273 7,138 
Operating (gains), losses and other charges, net(153)846 
Losses (gains) and amortization on interest rate swaps, net10,744 (41,924)
Amortization of deferred financing costs317 317 
(Gains) losses on investments(29)223 
Losses on early termination of debt and leases— 24 
Deferred income tax expense710 10,766 
Share-based compensation expense5,613 7,520 
Changes in assets and liabilities, excluding acquisitions and dispositions:  
Receivables6,760 (3,419)
Inventories3,004 (7,148)
Prepaids and other current assets2,488 3,563 
Other noncurrent assets247 6,125 
   Operating lease assets and liabilities(359)(466)
Accounts payable(7,754)(1,541)
Other accrued liabilities(1,646)(11,062)
Other noncurrent liabilities(699)(6,211)
Net cash flows provided by operating activities35,651 9,609 
Cash flows from investing activities:  
Capital expenditures(3,307)(5,771)
Proceeds from sales of restaurants, real estate and other assets3,088 170 
Investment purchases(1,300)(1,200)
Collections on notes receivable347 126 
Net cash flows used in investing activities(1,172)(6,675)
Cash flows from financing activities:  
Revolver borrowings65,200 45,325 
Revolver payments(79,700)(28,325)
Repayments of finance leases(938)(1,018)
Tax withholding on share-based payments(2,999)(4,782)
Purchase of treasury stock(19,667)(46,249)
Net bank overdrafts1,232 2,851 
Net cash flows used in financing activities(36,872)(32,198)
Decrease in cash and cash equivalents(2,393)(29,264)
Cash and cash equivalents at beginning of period3,523 30,624 
Cash and cash equivalents at end of period$1,130 $1,360 

See accompanying notes
8

Denny’s Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Note 1.     Introduction and Basis of Presentation

Denny’s Corporation, or the Company, is one of America’s largest full-service restaurant chains based on number of restaurants. As of June 28, 2023, the Company consisted of 1,646 restaurants, 1,572 of which were franchised/licensed restaurants and 74 of which were company operated.

The Company consists of the Denny’s brand ("Denny's") and the Keke’s Breakfast Café brand (“Keke’s”). Keke’s was acquired on July 20, 2022. As of June 28, 2023, the Denny's brand consisted of 1,591 restaurants, 1,525 of which were franchised/licensed restaurants and 66 of which were company operated. At June 28, 2023, the Keke's brand consisted of 55 restaurants, 47 of which were franchised restaurants and eight of which were company operated.

Through the current quarter ended June 28, 2023, many Denny’s restaurants have not returned to full operating hours, since closing or reducing hours in 2020 due to the COVID-19 pandemic, particularly at the late night daypart. Additionally, our restaurant operations have been negatively impacted by a tight labor market and inflated commodity costs. Our operating results substantially depend upon the sales volumes, restaurant profitability, and financial stability of our company and franchised and licensed restaurants. We cannot currently estimate the duration or future negative financial impact of these economic conditions on our business. Ongoing material adverse effects of these economic conditions for an extended period could negatively affect our business, results of operations, liquidity and financial condition and could impact our impairment assessments of accounts receivable, intangible assets, long-lived assets and goodwill.

Our unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial information. Therefore, certain information and notes normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. In our opinion, all adjustments considered necessary for a fair presentation of the interim periods presented have been included. Such adjustments are of a normal and recurring nature. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates are reasonable.

These interim consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto as of and for the fiscal year ended December 28, 2022 which are contained in our audited Annual Report on Form 10-K for the fiscal year ended December 28, 2022. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire fiscal year ending December 27, 2023. Our significant interim accounting policies include the recognition of advertising and marketing costs, generally in proportion to revenue, and the recognition of income taxes using an estimated annual effective rate.

Note 2.     Summary of Significant Accounting Policies
 
Newly Adopted Accounting Standards

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which was later clarified in January 2021 by ASU 2021-01, “Reference Rate Reform (Topic 848): Scope”. Additionally, in December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, which allows ASU 2020-04 to be adopted and applied prospectively to contract modifications made on or before December 31, 2024. The guidance provides optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The Company adopted ASU 2020-04 on March 12, 2020. The adoption of and future elections under this new guidance did not and are not expected to have a material impact on the Company’s consolidated financial position or results of operations. The guidance is effective through December 31, 2024.

Accounting Standards to be Adopted

We reviewed all other newly issued accounting pronouncements and concluded that they are either not applicable to our business or are not expected to have a material effect on our consolidated financial statements as a result of future adoption.

9

Note 3.     Receivables
 
Receivables consisted of the following:
 June 28, 2023December 28, 2022
 (In thousands)
Receivables, net:  
Trade accounts receivable from franchisees$12,908 $13,314 
Other receivables from franchisees1,486 6,731 
Vendor receivables1,768 3,466 
Credit card receivables738 896 
Other1,856 1,545 
Allowance for doubtful accounts(287)(376)
Total receivables, net$18,469 $25,576 


Note 4.    Goodwill and Intangible Assets

The following table reflects the changes in carrying amount of goodwill:
June 28, 2023
(In thousands)
Balance, beginning of year$72,740 
Reclassifications to assets held for sale(598)
Balance, end of period$72,142 
Goodwill by segment consisted of the following:
June 28, 2023December 28, 2022
(In thousands)
Denny’s$37,527 $37,527 
Other34,615 35,213 
Total goodwill$72,142 $72,740 

Intangible assets consisted of the following:
 June 28, 2023December 28, 2022
 Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
 (In thousands)
Intangible assets with indefinite lives:
    
Trade names$79,687 $— $79,687 $— 
Liquor licenses120 — 120 — 
Intangible assets with definite lives:
    
Reacquired franchise rights9,594 5,288 10,489 5,697 
Franchise agreements10,700 593 10,700 265 
Intangible assets, net$100,101 $5,881 $100,996 $5,962 

Amortization expense for intangible assets with definite lives totaled $0.4 million and $0.8 million for the quarter and year-to-date period ended June 28, 2023, respectively. Amortization expense for intangible assets with definite lives totaled $0.3 million and $0.6 million for the quarter and year-to-date period ended June 29, 2022, respectively.

10

Note 5.     Other Current Liabilities
 
Other current liabilities consisted of the following:
 June 28, 2023December 28, 2022
 (In thousands)
Accrued payroll$14,458 $17,903 
Current portion of liability for insurance claims
3,461 3,492 
Accrued taxes4,497 4,452 
Accrued advertising7,590 6,069 
Gift cards6,212 7,675 
Accrued legal settlements5,644 5,446 
Accrued interest4,320 1,142 
Other10,786 10,583 
Other current liabilities$56,968 $56,762 

Note 6.     Fair Value of Financial Instruments

Financial assets and liabilities measured at fair value on a recurring basis are summarized below: 
 TotalQuoted Prices in Active Markets for Identical Assets/Liabilities
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
 
(In thousands)
Fair value measurements as of June 28, 2023:
Deferred compensation plan investments (1)
$11,342 $11,342 $— $— 
Interest rate swaps (2)
10,597 — 10,597 — 
Investments (3)
3,075 — 3,075 — 
Total$25,014 $11,342 $13,672 $— 
Fair value measurements as of December 28, 2022:
Deferred compensation plan investments (1)
$10,818 $10,818 $— $— 
Interest rate swaps (2)
20,047 — 20,047 — 
Investments (3)
1,746 — 1,746 — 
Total$32,611 $10,818 $21,793 $— 

(1)    The fair values of our deferred compensation plan investments are based on the closing market prices of the elected investments and are included in other noncurrent assets in our Consolidated Balance Sheets.
(2)    The fair values of our interest rate swaps are based upon Level 2 inputs, which include valuation models. The key inputs for the valuation models are quoted market prices, interest rates, forward yield curves and credit risk adjustments that are necessary to reflect the probability of default by the counterparty or us. For disclosures about the fair value measurements of our derivative instruments, see Note 7.
(3)    The fair values of our investments are valued using a readily determinable net asset value per share based on the fair value of the underlying securities. There are no significant redemption restrictions associated with these investments.

Assets that are measured at fair value on a non-recurring basis include property, operating right-of-use assets, finance right-of-use assets, goodwill and intangible assets. During the year-to-date period ended June 28, 2023, we recognized impairment charges of $0.1 million related to certain of these assets. See Note 9.

The carrying amounts of cash and cash equivalents, accounts receivables, accounts payable and accrued expenses are deemed to approximate fair value due to the immediate or short-term maturity of these instruments. The fair value of notes receivable approximates the carrying value after consideration of recorded allowances and related risk-based interest rates. The liabilities under our credit facility are carried at historical cost, which approximates fair value. The fair value of our senior secured revolver approximates its carrying value since it is a variable rate facility (Level 2).

11

Note 7.     Long-Term Debt

The Company and certain of its subsidiaries have a credit facility consisting of a five-year $400 million senior secured revolver (with a $25 million letter of credit sublimit). The maturity date for the credit facility is August 26, 2026. The credit facility includes an accordion feature that would allow us to increase the size of the facility to $450 million. Borrowings bear a tiered interest rate, which is based on the Company's consolidated leverage ratio. During the quarter ended June 28, 2023, the credit facility was amended to change the benchmark interest rate from LIBOR to Adjusted Daily Simple SOFR.

The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit facility is guaranteed by the Company and its material subsidiaries and is secured by assets of the Company and its subsidiaries, including the stock of its subsidiaries (other than its insurance captive subsidiary). It includes negative covenants that are usual for facilities and transactions of this type. The credit facility also includes certain financial covenants with respect to a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. We were in compliance with all financial covenants as of June 28, 2023.

As of June 28, 2023, we had outstanding revolver loans of $247.0 million and outstanding letters of credit under the credit facility of $12.3 million. These balances resulted in unused commitments of $140.7 million as of June 28, 2023 under the credit facility.

As of June 28, 2023, borrowings under the credit facility bore interest at a rate of Adjusted Daily Simple SOFR plus 2.25%. Letters of credit under the credit facility bore interest at a rate of 2.38%. The commitment fee, paid on the unused portion of the credit facility, was set to 0.35%.

Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 7.40% and 6.37% as of June 28, 2023 and December 28, 2022, respectively. Taking into consideration our interest rate swaps that are designated as cash flow hedges, the weighted-average interest rate of outstanding revolver loans was 5.26% and 5.31% as of June 28, 2023 and December 28, 2022, respectively.

Interest Rate Hedges
We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt. A summary of our interest rate swaps as of June 28, 2023 is as follows:
Trade DateEffective DateMaturity DateNotional AmountFair ValueFixed Rate
(In thousands)
Swaps designated as cash flow hedges
March 20, 2015March 29, 2018March 31, 2025$120,000 $4,814 2.34 %
October 1, 2015March 29, 2018March 31, 2026$50,000 $2,417 2.37 %
February 15, 2018March 31, 2020December 31, 2033$26,000 (1)$3,366 3.09 %
Total$196,000 $10,597 

(1)     The notional amounts of the swaps entered into on February 15, 2018 increase periodically until they reach the maximum notional amount of $335 million on August 31, 2033.

On March 31, 2023, the Company entered into amendments of its credit facility and interest rate swaps. The amendments transition our credit facility and interest rate swap benchmark interest rates from LIBOR to Adjusted Daily Simple SOFR, as such the fixed rate in the table above has been adjusted to the appropriate fixed rate. The conversion to Adjusted Daily Simple SOFR did not have a material impact on the Company's consolidated financial position or results of operations.

Termination and Designation of Certain Interest Rate Swaps

During the quarter ended March 29, 2023, we terminated a portion of our hedging relationship entered into in 2018 (“2018 Swaps”), reducing the previous maximum notional amount of $425 million on August 31, 2033 to $335 million. As a result, we expect our total swaps to approximate 80% of our outstanding debt prospectively. We received $1.5 million of cash as a result of the termination which is recorded as a component of operating activities in our Consolidated Statements of Cash Flow for the year-to-date period ended June 28, 2023.

12

In addition, during the quarter ended March 29, 2023, we designated the remaining 2018 Swaps as cash flow hedges of our exposure to variability in future cash flows attributable to variable rate interest payments due on forecasted notional amounts.

Changes in Fair Value of Interest Rate Swaps

To the extent the swaps are highly effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swaps are not included in the Consolidated Statements of Operations but are reported as a component of other comprehensive income (loss). Our interest rate swaps are designated as cash flow hedges with unrealized gains and losses recorded as a component of accumulated other comprehensive loss, net.

As of June 28, 2023, the fair value of the swaps designated as cash flow hedges was an asset of $10.6 million, recorded as a component of other noncurrent assets. The designated swaps have an offsetting amount (before taxes) recorded as a component of accumulated other comprehensive loss, net in our Consolidated Balance Sheets. See Note 13 for amounts recorded in accumulated other comprehensive loss related to interest rate swaps. We expect to reclassify $5.3 million from accumulated other comprehensive loss, net as a reduction to interest expense, net in our Consolidated Statements of Operations related to swaps designated as cash flow hedges during the next 12 months.

For the periods prior to their designation as cash flow hedges, changes in the fair value of the 2018 Swaps were recorded as a component of other nonoperating expense (income), net in our Consolidated Statements of Operations. For the year-to-date period ended June 28, 2023, we recorded expense of $10.6 million, and for the quarter and year-to-date period ended June 29, 2022, we recorded income of $21.7 million and $41.9 million, respectively, as a component of other nonoperating expense (income), net related to the 2018 Swaps resulting from changes in fair value.

Amortization of Certain Amounts Included in Accumulated Other Comprehensive Loss, Net

At June 28, 2023, we had a total of $64.4 million (before taxes) included in accumulated other comprehensive loss, net related to i) the discontinuance of hedge accounting treatment related to certain cash flow hedges in prior years and ii) the fair value of certain swaps at the date of designation as cash flow hedges that are being amortized into our Consolidated Statements of Operations as a component of interest expense, net over the remaining term of the related swap.

For the quarter and year-to-date period ended June 28, 2023, we recorded unrealized losses of $0.1 million to interest expense, net. For the quarter and year-to-date period ended June 29, 2022, we recorded unrealized losses of less than $0.1 million to interest expense, net. We expect to amortize $0.5 million from accumulated other comprehensive loss, net to interest expense, net in our Consolidated Statements of Operations related to dedesignated interest rate swaps during the next 12 months.

Note 8.     Revenues

The following table disaggregates our revenue by sales channel and type of good or service:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Company restaurant sales$54,881 $49,167 $108,333 $93,143 
Franchise and license revenue:
Royalties30,376 28,759 60,403 55,284 
Advertising revenue19,853 19,486 39,521 37,692 
Initial and other fees2,616 7,779 7,606 12,286 
Occupancy revenue 9,189 9,826 18,523 19,719 
Franchise and license revenue 
62,034 65,850 126,053 124,981 
Total operating revenue$116,915 $115,017 $234,386 $218,124 

13

Franchise occupancy revenue consisted of the following:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Operating lease revenue$6,683 $7,253 $13,554 $14,671 
Variable lease revenue
2,506 2,573 4,969 5,048 
Total occupancy revenue
$9,189 $9,826 $18,523 $19,719 

Balances related to contracts with customers consists of receivables, contract assets, deferred franchise revenue and deferred gift card revenue. See Note 3 for details on our receivables.
Deferred franchise revenue consists primarily of the unamortized portion of initial franchise fees that are currently being amortized into revenue and amounts related to development agreements and unopened restaurants that will begin amortizing into revenue when the related restaurants are opened. Deferred franchise revenue represents our remaining performance obligations to our franchisees, excluding amounts of variable consideration related to sales-based royalties and advertising.
The components of the change in deferred franchise revenue are as follows:
 (In thousands)
Balance, December 28, 2022$20,751 
Fees received from franchisees990 
Revenue recognized (1)
(1,608)
Balance, June 28, 202320,133 
Less current portion included in other current liabilities2,204 
Deferred franchise revenue included in other noncurrent liabilities$17,929 
(1)    Of this amount $1.4 million was included in the deferred franchise revenue balance as of December 28, 2022.

We record contract assets related to incentives and subsidies provided to franchisees related to new unit openings and/or equipment upgrades. These amounts will be recognized as a component of franchise and license revenue over the remaining term of the related franchise agreements.

The components of the change in contract assets are as follows:
 (In thousands)
Balance, December 28, 2022$5,361 
Franchisee deferred costs1,103 
Contract asset amortization(740)
Balance, June 28, 20235,724 
Less current portion included in other current assets915 
Contract assets included in other noncurrent assets$4,809 

The Company purchases equipment related to various programs for franchise restaurants, including kitchen and point-of-sale system equipment. We bill our franchisees and recognize revenue when the related equipment is installed, less amounts contributed from the Company, which have been deferred as contract assets in the table above. We recognized $0.5 million and $2.9 million of revenue, recorded as a component of initial and other fees, related to the sale of equipment to franchisees during the quarter and year-to-date period ended June 28, 2023, and for the quarter and year-to-date period ended June 29, 2022, we recognized $5.7 million and $7.9 million of revenue, respectively. As of June 28, 2023, we had $1.0 million in inventory and $1.5 million in receivables related to the purchased equipment. As of December 28, 2022, we had $3.6 million in inventory and $6.6 million in receivables related to the kitchen equipment rollout.

Deferred gift card liabilities consist of the unredeemed portion of gift cards sold in company restaurants and at third party locations. The balance of deferred gift card liabilities represents our remaining performance obligations to our customers. The balance of deferred gift card liabilities as of June 28, 2023 and December 28, 2022 was $6.2 million and $7.7 million, respectively. During the year-to-date period ended June 28, 2023, we recognized revenue of $0.3 million from gift card redemptions at company restaurants.

14


Note 9.     Operating (Gains), Losses and Other Charges, Net

Operating (gains), losses and other charges, net consisted of the following:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Gains on sales of assets and other, net$(522)$(99)$(2,044)$(245)
Restructuring charges and exit costs
1,698 679 1,762 825 
Impairment charges— 266 129 266 
Operating (gains), losses and other charges, net
$1,176 $846 $(153)$846 
 
We recorded impairment charges of $0.1 million related to property for the year-to-date period ended June 28, 2023, resulting from assets being classified as held for sale. As of June 28, 2023, we had recorded assets held for sale at the lesser of carrying value or fair value amount of $1.6 million (consisting of property of $0.9 million, goodwill of $0.6 million and other assets of $0.1 million) related to one parcel of real estate and three Keke's restaurants. As of December 28, 2022, we had recorded assets held for sale at their carrying amount of $1.4 million (consisting of property of $1.1 million and other assets of $0.3 million) related to four parcels of real estate.

Restructuring charges and exit costs consisted of the following:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Exit costs$52 $38 $52 $50 
Severance and other restructuring charges
1,646 641 1,710 775 
Total restructuring charges and exit costs
$1,698 $679 $1,762 $825 

Exit costs primarily consist of costs related to closed restaurants. Exit cost liabilities related to lease costs are included as a component of operating lease liabilities in our Consolidated Balance Sheets.

As of June 28, 2023 and December 28, 2022, we had accrued severance and other restructuring charges of $1.8 million and $0.7 million, respectively. The balance as of June 28, 2023 is expected to be paid primarily during the next 12 months.

Note 10.     Share-Based Compensation

Total share-based compensation included as a component of general and administrative expenses was as follows:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Employee share awards$2,287 $3,284 $5,134 $7,078 
Restricted stock units for board members
232 221 479 442 
Total share-based compensation
$2,519 $3,505 $5,613 $7,520 
 










15

Employee Share Awards

During the year-to-date period ended June 28, 2023, we granted certain employees 0.3 million performance share units ("PSUs") with a weighted average grant date fair value of $18.39 per share that vest based on the total shareholder return (“TSR”) of our common stock compared to the TSRs of a group of peer companies and 0.3 million PSUs with a weighted average grant date fair value of $11.90 per share that vest based on our Adjusted EPS growth rate versus plan, as defined under the terms of the award. As the TSR based PSUs contain a market condition, a Monte Carlo valuation was used to determine the grant date fair value. The performance period for these PSUs is the three-year fiscal period beginning December 29, 2022 and ending December 31, 2025. The PSUs will completely vest and be earned at the end of the performance period at which point the relative TSR and Adjusted EPS growth rate achievement percentages will be applied to the vested units (from 0% to 200% of the target award). We recognize compensation cost associated with 0.5 million of these PSU awards over the entire performance period on a straight-line basis, with compensation cost for the remaining 0.1 million PSU awards recognized on a graded-vesting basis due to the accelerated vesting terms for certain retirement eligible individuals.

During the year-to-date period ended June 28, 2023, we also granted certain employees 0.7 million restricted stock units ("RSUs") with a weighted average grant date fair value of $11.83 per share. These RSUs generally vest evenly over the three-year fiscal period beginning December 29, 2022 and ending December 31, 2025. We recognize compensation cost associated with these RSU awards on a straight-line basis over the entire performance period of the award.

During the year-to-date period ended June 28, 2023, we issued 0.5 million shares of common stock related to vested PSUs and RSUs. In addition, 0.3 million shares of common stock were withheld in lieu of taxes related to vested PSUs and RSUs.
 
As of June 28, 2023, we had $19.5 million of unrecognized compensation cost related to unvested PSU awards and RSU awards outstanding, which have a weighted average remaining contractual term of 2.1 years.

Restricted Stock Units for Board Members

During the quarter and year-to-date period ended June 28, 2023, we granted less than 0.1 million RSUs (which are equity classified) with a grant date fair value of $10.71 per unit to non-employee members of our Board of Directors. The RSUs vest after a one year service period. A director may elect to convert these awards into shares of common stock either on a specific date in the future (while still serving as a member of our Board of Directors), upon termination as a member of our Board of Directors, or in three equal annual installments commencing after termination of service as a member of our Board of Directors.

During the quarter and year-to-date period ended June 28, 2023, 0.2 million RSUs were converted into shares of common stock.

As of June 28, 2023, we had $0.7 million of unrecognized compensation cost related to unvested RSU awards outstanding, which have a weighted average remaining contractual term of 0.9 years.

Note 11.     Income Taxes

The effective income tax rate was 23.8% for the quarter and 28.3% for the year-to-date period ended June 28, 2023, compared to 25.3% and 26.2% for the prior year periods, respectively. The effective income tax rate for the quarter and year-to-date period ended June 28, 2023 included discrete items relating to share-based compensation of (3.9)% and 2.5%, respectively.

16

Note 12.     Net Income Per Share
 
The amounts used for the basic and diluted net income per share calculations are summarized below:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands, except per share amounts)
Net income$8,538 $23,003 $9,135 $44,858 
Weighted average shares outstanding - basic
56,787 62,306 57,212 62,822 
Effect of dilutive share-based compensation awards264 124 211 181 
Weighted average shares outstanding - diluted
57,051 62,430 57,423 63,003 
Net income per share - basic$0.15 $0.37 $0.16 $0.71 
Net income per share - diluted$0.15 $0.37 $0.16 $0.71 
Anti-dilutive share-based compensation awards— 740 814 785 

Note 13.     Shareholders' Deficit

Share Repurchases

Our credit facility permits the repurchase of the Company's stock and the payment of cash dividends subject to certain limitations. Our Board of Directors approves share repurchases of our common stock. Under these authorizations, we may, from time to time, purchase shares in the open market (including pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Securities Exchange Act of 1934, as amended) or in privately negotiated transactions, subject to market and business conditions. Currently, we are operating under a $250 million share repurchase authorization approved by the Board of Directors in December 2019.

During the year-to-date period ended June 28, 2023, we repurchased a total of 1.7 million shares of our common stock for $19.4 million, including excise taxes, under the current authorization. This brings the total amount repurchased under the current authorization to $116.9 million, leaving $133.1 million that can be used to repurchase our common stock under this authorization as of June 28, 2023. Repurchased shares are included as treasury stock in our Consolidated Balance Sheets and our Consolidated Statements of Shareholders' Deficit.

As of June 28, 2023, 10.0 million shares were held in treasury stock.

17

Accumulated Other Comprehensive Loss, Net

The components of the change in accumulated other comprehensive loss, net were as follows:
Defined Benefit PlansDerivativesAccumulated Other Comprehensive Loss, Net
(In thousands)
Balance as of December 28, 2022$(555)$(42,142)$(42,697)
Amortization of net loss (1)
103 — 103 
Changes in the fair value of cash flow hedges— 5,108 5,108 
Reclassification of cash flow hedges to interest expense, net (2)
— (2,165)(2,165)
Amortization of unrealized losses related to interest rate swaps to interest expense, net— 138 138 
Income tax expense related to items of other comprehensive income (loss)(26)(782)(808)
Balance as of June 28, 2023$(478)$(39,843)$(40,321)

(1)    Before-tax amount related to our defined benefit plans that was reclassified from accumulated other comprehensive loss, net and included as a component of pension expense within general and administrative expenses in our Consolidated Statements of Operations during the year-to-date period ended June 28, 2023.
(2)    Amounts reclassified from accumulated other comprehensive loss, net into interest expense, net in our Consolidated Statements of Operations represent payments either (received from) or made to the counterparty for the interest rate hedges. See Note 7 for additional details.

Note 14.     Commitments and Contingencies

Legal Proceedings

There are various claims and pending legal actions against or indirectly involving us, incidental to and arising out of the ordinary course of the business. In the opinion of management, based upon information currently available, the ultimate liability with respect to these proceedings and claims will not materially affect our consolidated results of operations or financial position. 

Note 15.     Supplemental Cash Flow Information
 Two Quarters Ended
 June 28, 2023June 29, 2022
 (In thousands)
Income taxes paid, net$3,910 $4,644 
Interest paid$5,372 $5,617 
Noncash investing and financing activities:  
Issuance of common stock, pursuant to share-based compensation plans$5,612 $9,547 
Receipt of real estate receivable$— $3,000 
Execution of finance leases$496 $311 
Treasury stock payable$265 $3,633 
 
Note 16. Segment Information

We manage our business by brand and as a result have identified two operating segments, Denny’s and Keke’s. In addition, we have identified Denny’s as a reportable segment. The Denny’s reportable segment includes the results of all company and franchised and licensed Denny’s restaurants. Our Keke’s operating segment, which includes the results of all company and franchised Keke's restaurants, is included in Other.

18

The primary sources of revenues for all operating segments are the sale of food and beverages at our company restaurants and the collection of royalties, advertising revenue, initial and other fees, including occupancy revenue, from restaurants operated by our franchisees. We do not rely on any major customer as a source of sales and the customers and assets of all operating segments are located predominantly in the United States. There are no material transactions between segments.

Management’s measure of segment income is restaurant-level operating margin. The Company defines restaurant-level operating margin as operating income excluding the following three items: general and administrative expenses, depreciation and amortization, and operating (gains), losses and other charges, net. The Company excludes general and administrative expenses, which include primarily non restaurant-level costs associated with support of company and franchised restaurants and other activities at their corporate office. The Company excludes depreciation and amortization expense, substantially all of which is related to company restaurant-level assets, because such expenses represent historical sunk costs which do not reflect current cash outlays for the restaurants. The Company excludes operating (gains), losses and other charges, net, to provide a clearer perspective of its ongoing operating performance. Restaurant-level operating margin is used by our chief operating decision maker (“CODM”) to evaluate restaurant-level operating efficiency and performance.

The following tables present revenues by segment and a reconciliation of restaurant-level operating margin to operating income:
Quarter EndedTwo Quarters Ended
June 28, 2023June 29, 2022June 28, 2023June 29, 2022
Revenues by operating segment:(In thousands)
Denny’s$111,586 $115,017 $223,816 $218,124 
Other5,329 — 10,570 — 
Total operating revenue$116,915 $115,017 $234,386 $218,124 
Segment income:
Denny’s$37,941 $34,924 $74,581 $68,737 
Other1,946 — 3,898 — 
Total restaurant-level operating margin$39,887 $34,924 $78,479 $68,737 
General and administrative expenses$20,160 $16,623 $40,278 $33,581 
Depreciation and amortization3,617 3,590 7,273 7,138 
Operating (gains), losses and other charges, net1,176 846 (153)846 
Total other operating expenses24,953 21,059 47,398 41,565 
Operating income14,934 13,865 31,081 27,172 
Interest expense, net4,402 2,878 8,907 5,838 
Other nonoperating expense (income), net(666)(19,795)9,427 (39,410)
Income before income taxes11,198 30,782 12,747 60,744 
Provision for income taxes2,660 7,779 3,612 15,886 
Net income$8,538 $23,003 $9,135 $44,858 

June 28, 2023December 28, 2022
Segment assets:(In thousands)
Denny’s$362,443 $394,051 
Other103,182 104,284 
Total assets$465,625 $498,335 

19

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company urges caution in considering its current trends and any outlook on its operations and financial results disclosed in this report. In addition, certain matters discussed in this report may constitute forward-looking statements. These forward-looking statements, which reflect management's best judgment based on factors currently known, are intended to speak only as of the date such statements are made and involve risks, uncertainties, and other factors that may cause the actual performance of Denny’s Corporation, its subsidiaries, and underlying restaurants to be materially different from the performance indicated or implied by such statements. Words such as “expect”, “anticipate”, “believe”, “intend”, “plan”, “hope”, "will" and variations of such words and similar expressions are intended to identify such forward-looking statements. Except as may be required by law, the Company expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. Factors that could cause actual performance to differ materially from the performance indicated by these forward-looking statements include, among others: economic, public health and political conditions that impact consumer confidence and spending; commodity and labor inflation; the ability to effectively staff restaurants; our ability to maintain adequate levels of liquidity for our cash needs, including debt obligations, payment of dividends, planned share repurchases and capital expenditures as well as the ability of our customers, suppliers, franchisees and lenders to access sources of liquidity to provide for their own cash needs; competitive pressures from within the restaurant industry; our ability to integrate and derive the expected benefits from our acquisition of Keke's; the level of success of our operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses, or other diseases; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy (including with regard to energy costs), particularly at the retail level; political environment and geopolitical events (including acts of war and terrorism); and other factors from time to time set forth in the Company’s SEC reports and other filings, including but not limited to the discussion in Management’s Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2022 and in the Company's subsequent quarterly reports on Form 10-Q.

Acquisition of Keke's

On July 20, 2022, the Company completed its acquisition of Keke's. At June 28, 2023, the Keke's brand consisted of 55 restaurants, 47 of which were franchised restaurants and eight of which were company operated. For further details, refer to Note 3 to our Consolidated Financial Statements in Part IV, Item 15 of our Form 10-K for the fiscal year ended December 28, 2022.
20

Statements of Operations
 
The following table contains information derived from our Consolidated Statements of Operations expressed as a percentage of total operating revenue, except as noted below. Percentages may not add due to rounding.
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Revenue:        
Company restaurant sales$54,881 46.9 %$49,167 42.7 %$108,333 46.2 %$93,143 42.7 %
Franchise and license revenue62,034 53.1 %65,850 57.3 %126,053 53.8 %124,981 57.3 %
Total operating revenue116,915 100.0 %115,017 100.0 %234,386 100.0 %218,124 100.0 %
Costs of company restaurant sales, excluding depreciation and amortization (a):
    
Product costs14,170 25.8 %13,168 26.8 %28,209 26.0 %24,412 26.2 %
Payroll and benefits20,488 37.3 %18,336 37.3 %40,728 37.6 %35,422 38.0 %
Occupancy4,105 7.5 %3,782 7.7 %8,199 7.6 %7,022 7.5 %
Other operating expenses7,805 14.2 %9,542 19.4 %15,924 14.7 %16,597 17.8 %
Total costs of company restaurant sales, excluding depreciation and amortization46,568 84.9 %44,828 91.2 %93,060 85.9 %83,453 89.6 %
Costs of franchise and license revenue, excluding depreciation and amortization (a)30,460 49.1 %35,265 53.6 %62,847 49.9 %65,934 52.8 %
General and administrative expenses20,160 17.2 %16,623 14.5 %40,278 17.2 %33,581 15.4 %
Depreciation and amortization3,617 3.1 %3,590 3.1 %7,273 3.1 %7,138 3.3 %
Operating (gains), losses and other charges, net
1,176 1.0 %846 0.7 %(153)(0.1)%846 0.4 %
Total operating costs and expenses, net
101,981 87.2 %101,152 87.9 %203,305 86.7 %190,952 87.5 %
Operating income14,934 12.8 %13,865 12.1 %31,081 13.3 %27,172 12.5 %
Interest expense, net4,402 3.8 %2,878 2.5 %8,907 3.8 %5,838 2.7 %
Other nonoperating expense (income), net(666)(0.6)%(19,795)(17.2)%9,427 4.0 %(39,410)(18.1)%
Income before income taxes11,198 9.6 %30,782 26.8 %12,747 5.4 %60,744 27.8 %
Provision for income taxes2,660 2.3 %7,779 6.8 %3,612 1.5 %15,886 7.3 %
Net income$8,538 7.3 %$23,003 20.0 %$9,135 3.9 %$44,858 20.6 %
            
(a)Costs of company restaurant sales percentages are as a percentage of company restaurant sales. Costs of franchise and license revenue percentages are as a percentage of franchise and license revenue. All other percentages are as a percentage of total operating revenue.
21

Statistical DataQuarter EndedTwo Quarters Ended
June 28, 2023June 29, 2022June 28, 2023June 29, 2022
(Dollars in thousands)
Denny's    
Company average unit sales$786 $761 $1,548 $1,443 
Franchise average unit sales$466 $442 $918 $846 
Company equivalent units (a)65 64 65 64 
Franchise equivalent units (a)1,525 1,567 1,527 1,570 
Company same-store sales increase vs. prior year (b)(c)3.0 %3.8 %7.0 %14.9 %
Domestic franchise same-store sales increase vs. prior year (b)(c)3.0 %2.4 %5.5 %11.2 %
Keke's (d)
Company average unit sales$459 $— $925 $— 
Franchise average unit sales$476 $— $967 $— 
Company equivalent units (a)8 — 8 — 
Franchise equivalent units (a)47 — 46 — 
            
(a)Equivalent units are calculated as the weighted average number of units in operation during a defined time period.
(b)Same-store sales include sales from company restaurants or non-consolidated franchised and licensed restaurants that were open during the comparable periods noted.
(c)Prior year amounts have not been restated for 2023 comparable units.
(d)Same-store sales data for Keke's is not reported due to the acquisition being completed during the quarter ended September 28, 2022.

 
Unit ActivityQuarter EndedTwo Quarters Ended
June 28, 2023June 29, 2022June 28, 2023June 29, 2022
Denny's
Company restaurants, beginning of period66 65 66 65 
Units opened— — — — 
Units closed— — — — 
End of period66 65 66 65 
Franchised and licensed restaurants, beginning of period1,528 1,569 1,536 1,575 
Units opened 9 4 14 9 
Units closed(12)(7)(25)(18)
End of period1,525 1,566 1,525 1,566 
Total restaurants, end of period1,591 1,631 1,591 1,631 
Keke's
Company restaurants, beginning of period8 — 8 — 
Units opened— — — — 
Units closed— — — — 
End of period8 — 8 — 
Franchised restaurants, beginning of period46 — 46 — 
Units opened 1 — 1 — 
Units closed— — — — 
End of period47 — 47 — 
Total restaurants, end of period55 — 55 — 

22

Company Restaurant Operations
 
Company restaurant sales increased $5.7 million, or 11.6%, for the quarter ended June 28, 2023 and $15.2 million, or 16.3%, year-to-date compared to the prior year periods. The increases in sales include $3.7 million and $7.4 million in sales from Keke's during the quarter and year-to-date period ended June 28, 2023, respectively. Also contributing to the sales increases were higher sales at Denny's company stores, as same-store sales increased 3.0% for the current quarter and 7.0% year-to-date as compared to the prior year periods. The increases in Denny's sales were primarily driven by increases in guest check average resulting from price increases to partially offset inflationary costs.

Total costs of company restaurant sales as a percentage of company restaurant sales were 84.9% for the quarter ended June 28, 2023 and 85.9% year-to-date compared to 91.2% and 89.6% for the prior year periods, respectively.

Product costs as a percentage of company restaurant sales were 25.8% for the quarter ended June 28, 2023 and 26.0% year-to-date compared to 26.8% and 26.2% for the prior year periods, respectively, primarily due to increased pricing, partially offset by higher commodity costs.

Payroll and benefits as a percentage of company restaurant sales were 37.3% for the quarter ended June 28, 2023 and 37.6% year-to-date compared to 37.3% and 38.0%, respectively, in the prior year periods. The current quarter remained flat as a percentage of company restaurant sales primarily due to the leveraging effect of higher sales and a 0.3 percentage point decrease in incentive compensation, partially offset by a 0.5 percentage point increase in workers' compensation costs primarily resulting from positive claims development in the prior year period. The year-to-date decrease was primarily due to a 0.7 percentage point decrease in payroll costs due to the leveraging effect of higher sales and a 0.4 percentage point decrease in incentive compensation, partially offset by a 0.8 percentage point increase in workers' compensation costs primarily resulting from positive claims development in the prior year period.

Occupancy costs as a percentage of company restaurant sales were 7.5% for the quarter ended June 28, 2023 and 7.6% year-to-date compared to 7.7% and 7.5%, respectively, in the prior year periods. The current quarter decrease as a percentage of company restaurant sales was primarily due to a 1.0 percentage point decrease in general liability insurance costs resulting from positive claims development in the current year period, partially offset by a 0.8 percentage point increase in rents and property taxes. The year-to-date increase as a percentage of company restaurant sales was primarily due to a 0.4 percentage point increase in rents and property taxes, partially offset by a 0.3 percentage point decrease in general liability costs primarily resulting from positive claims development in the current year period.

Other operating expenses consist of the following amounts and percentages of company restaurant sales:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Utilities$1,860 3.4 %$1,650 3.4 %$3,917 3.6 %$3,227 3.5 %
Repairs and maintenance782 1.4 %889 1.8 %1,671 1.5 %1,714 1.8 %
Marketing1,419 2.6 %1,330 2.7 %2,814 2.6 %2,537 2.7 %
Legal settlements121 0.2 %2,379 4.8 %230 0.2 %2,656 2.9 %
Other direct costs3,623 6.6 %3,294 6.7 %7,292 6.7 %6,463 6.9 %
Other operating expenses$7,805 14.2 %$9,542 19.4 %$15,924 14.7 %$16,597 17.8 %

Other direct costs were lower as a percentage of sales as compared to the prior year periods primarily due to unfavorable developments in certain legal claims during the prior year periods.












23

Franchise Operations

Franchise and license revenue and costs of franchise and license revenue consisted of the following amounts and percentages of franchise and license revenue for the periods indicated:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Royalties$30,376 49.0 %$28,759 43.7 %$60,403 47.9 %$55,284 44.2 %
Advertising revenue19,853 32.0 %19,486 29.6 %39,521 31.4 %37,692 30.2 %
Initial and other fees2,616 4.2 %7,779 11.8 %7,606 6.0 %12,286 9.8 %
Occupancy revenue 9,189 14.8 %9,826 14.9 %18,523 14.7 %19,719 15.8 %
Franchise and license revenue 
$62,034 100.0 %$65,850 100.0 %$126,053 100.0 %$124,981 100.0 %
Advertising costs$19,853 32.0 %$19,486 29.6 %$39,521 31.4 %$37,692 30.2 %
Occupancy costs 5,792 9.3 %6,064 9.2 %11,464 9.1 %12,441 10.0 %
Other direct costs 4,815 7.8 %9,715 14.8 %11,862 9.4 %15,801 12.6 %
Costs of franchise and license revenue 
$30,460 49.1 %$35,265 53.6 %$62,847 49.9 %$65,934 52.8 %

Franchise and license revenue decreased $3.8 million, or 5.8%, for the quarter ended June 28, 2023 and increased $1.1 million, or 0.9%, year-to-date compared to the prior year periods. Royalties increased $1.6 million, or 5.6%, and $5.1 million, or 9.3%, for the current quarter and year-to-date period, respectively, compared to the prior year periods. The increase in royalties includes $1.3 million and $2.7 million from Keke's franchise restaurants during the quarter and year-to-date period ended June 28, 2023, respectively. The increase in royalties was also supported by Denny's domestic franchise same-store sales increases of 3.0% for the current quarter and 5.5% year-to-date as compared to the prior year periods. These increases were partially offset by the impacts of fewer Denny's franchise equivalent units for the current quarter and year-to-date period.

Advertising revenue increased $0.4 million, or 1.9%, for the current quarter and $1.8 million, or 4.9%, year-to-date compared to the prior year periods. The increase in advertising revenue was supported by the 3.0% and 5.5% increases in Denny's franchise domestic same-store sales for the current quarter and year-to-date period, respectively, compared to the prior year periods. The increase during the current quarter and year-to-date period was also partially due to $0.2 million collected from Keke's franchise restaurants. This increase was partially offset by the impact of fewer Denny's franchise equivalent units for the current quarter and year-to-date period.

Initial and other fees decreased $5.2 million, or 66.4%, for the quarter ended June 28, 2023 and $4.7 million, or 38.1%, year-to-date compared to the prior year periods. The decreases in initial and other fees primarily resulted from a $5.2 million and $5.0 million decrease in revenue from the sale of equipment to franchisees during the current quarter and year-to-date period, respectively, as our kitchen modernization program was substantially completed during the quarter ended June 28, 2023. The revenue recorded related to the sale of equipment has an equal and offsetting expense recorded in other direct costs as described below. Occupancy revenue decreased $0.6 million, or 6.5%, for the current quarter and $1.2 million, or 6.1%, year-to-date compared to the prior year periods, primarily due to lease terminations.

Costs of franchise and license revenue decreased $4.8 million, or 13.6%, for the quarter ended June 28, 2023 and $3.1 million, or 4.7%, year-to-date compared to the prior year periods. Advertising costs increased $0.4 million, or 1.9%, for the current quarter and $1.8 million, or 4.9%, year-to-date, which corresponds to the related advertising revenue increase noted above. Occupancy costs decreased $0.3 million, or 4.5%, for the current quarter and $1.0 million, or 7.8%, year-to-date compared to the prior year periods, primarily due to lease terminations, which corresponds to the related occupancy revenue decrease noted above. Other direct franchise costs decreased $4.9 million, or 50.4%, for the current quarter and $3.9 million, or 24.9%, year-to-date compared to the prior year periods. The decrease in other direct franchise costs was partially due to a decrease of $5.1 million of expense for the current quarter and $4.8 million of expense year-to-date related to the costs of equipment sold to franchisees as mentioned above. Additionally, other direct franchise costs included an increase of $0.4 million and $0.6 million in franchise administrative costs for the current quarter and year-to-date period, respectively. As a result of the changes in franchise and license revenue discussed above, costs of franchise and license revenue decreased to 49.1% and 49.9% of franchise and license revenue for the quarter and year-to-date period ended June 28, 2023, respectively, from 53.6% and 52.8% for the prior year periods, respectively.


24

Other Operating Costs and Expenses

Other operating costs and expenses such as general and administrative expenses and depreciation and amortization expense relate to both company and franchise operations.

General and administrative expenses consisted of the following:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Corporate administrative expenses
$15,160 $13,162 $29,339 $24,545 
Share-based compensation2,519 3,505 5,613 7,520 
Incentive compensation
1,899 1,639 4,286 3,758 
Deferred compensation valuation adjustments
582 (1,683)1,040 (2,242)
Total general and administrative expenses
$20,160 $16,623 $40,278 $33,581 

Corporate administrative expenses increased $2.0 million for the quarter ended June 28, 2023 and $4.8 million for year-to-date period ended June 28, 2023 compared to the prior year periods. The increases were primarily due to compensation increases and administrative costs related to Keke's. Share-based compensation decreased $1.0 million for the current quarter and $1.9 million year-to-date primarily due to forfeitures compared to the prior year periods. Incentive compensation increased $0.2 million for the current quarter and $0.5 million year-to-date compared to the prior year periods, primarily related to the addition of Keke's. Changes in deferred compensation valuation adjustments have offsetting gains or losses on the underlying nonqualified deferred plan investments included as a component of other non-operating expense (income), net, for the corresponding periods.
 
Depreciation and amortization consisted of the following:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Depreciation of property and equipment
$2,697 $2,702 $5,396 $5,349 
Amortization of finance lease ROU assets356 437 751 879 
Amortization of intangible and other assets
564 451 1,126 910 
Total depreciation and amortization expense
$3,617 $3,590 $7,273 $7,138 

Depreciation and amortization expense increased during the quarter and year-to-date period ended June 28, 2023 resulting from the acquisition of Keke's.
 
Operating (gains), losses and other charges, net consisted of the following:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Gains on sales of assets and other, net$(522)$(99)$(2,044)$(245)
Restructuring charges and exit costs
1,698 679 1,762 825 
Impairment charges
— 266 129 266 
Operating (gains), losses and other charges, net
$1,176 $846 $(153)$846 

Gains on sales of assets and other, net for the quarter and year-to-date period ended June 28, 2023 were primarily related to the sale of two parcels of real estate during the quarter and three parcels of real estate year-to-date.

Impairment charges for the year-to-date period ended June 28, 2023 were related to a unit which is expected to be sold in the next 12 months.

25

Restructuring charges and exit costs consisted of the following:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Exit costs$52 $38 $52 $50 
Severance and other restructuring charges
1,646 641 1,710 775 
Total restructuring and exit costs
$1,698 $679 $1,762 $825 

Operating income was $14.9 million for the current quarter and $31.1 million year-to-date compared to $13.9 million and $27.2 million, respectively, for the prior year periods.

Interest expense, net consisted of the following:
 Quarter EndedTwo Quarters Ended
 June 28, 2023June 29, 2022June 28, 2023June 29, 2022
 (In thousands)
Interest on credit facility$4,717 $1,130 $9,230 $2,029 
Interest (income) expense on interest rate swaps(1,235)721 (2,165)1,711 
Interest on finance lease liabilities538 595 1,089 1,202 
Letters of credit and other fees
200 279 396 588 
Interest income
(59)(12)(99)(16)
Total cash interest, net4,161 2,713 8,451 5,514 
Amortization of deferred financing costs
158 159 317 317 
Amortization of interest rate swap losses82 6 138 6 
Interest accretion on other liabilities
1 — 1 1 
Total interest expense, net
$4,402 $2,878 $8,907 $5,838 
    
Total cash interest expense, net increased by $1.4 million for the current quarter and $2.9 million year-to-date compared to the prior year periods. These increases were primarily due to increased average borrowings and higher average interest rates, partially offset by our effective interest rate swaps.

Other nonoperating expense (income), net was income of $0.7 million for the current quarter and expense of $9.4 million year-to-date, compared to income of $19.8 million and $39.4 million for the prior year periods, respectively. Other nonoperating income, net for the current quarter primarily consisted of $0.6 million of gains on deferred compensation plan investments. The year-to-date period primarily consisted of $10.6 million of losses related to valuation adjustments for dedesignated interest rate hedges, partially offset by gains of $1.1 million on deferred compensation plan investments. Prior year other nonoperating income, net for the quarter primarily consisted of $21.7 million of gains related to dedesignated interest rate swap valuation adjustments, partially offset by losses of $1.7 million on deferred compensation plan investments. The prior year-to-date period primarily consisted of $41.9 million of gains on interest rate swap valuation adjustments, partially offset by $2.3 million of losses on deferred compensation plan investments.

During the quarter ended March 29, 2023, we terminated a portion of our hedging relationship entered into in 2018 (“2018 Swaps”), reducing the previous maximum notional amount of $425 million on August 31, 2033 to $335 million. As a result, we expect our total swaps to approximate 80% of our outstanding debt prospectively. In addition, during the quarter ended March 29, 2023, we designated the remaining 2018 Swaps as cash flow hedges of our exposure to variability in future cash flows attributable to variable rate interest payments due on forecasted notional amounts. As a result, subsequent to the designation of the 2018 Swaps, gains and losses related to these cash flow hedges have been and will be recorded as a component of accumulated other comprehensive loss, net.

26

Provision for income taxes was $2.7 million for the quarter ended June 28, 2023 and $3.6 million year-to-date, compared to $7.8 million and $15.9 million, respectively, for the prior year periods. The effective tax rate was 23.8% for the current quarter and 28.3% year-to-date, compared to 25.3% and 26.2% for the prior year periods. The effective income tax rate for the quarter and year-to-date period ended June 28, 2023 included the impact of discrete items relating to share-based compensation of (3.9)% and 2.5%, respectively. We expect the 2023 fiscal year effective tax rate to be between 27% and 31%. The annual effective tax rate cannot be determined until the end of the fiscal year; therefore, the actual rate could differ from our current estimates.

Net income was $8.5 million for the quarter ended June 28, 2023 and $9.1 million year-to-date compared to $23.0 million and $44.9 million, respectively, for the prior year periods.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash generated from operations and borrowings under our credit facility (as described below). Principal uses of cash are operating expenses, capital expenditures, the repurchase of shares of our common stock, and in the prior year, the acquisition of Keke's.
 
The following table presents a summary of our sources and uses of cash and cash equivalents for the periods indicated:

 Two Quarters Ended
 June 28, 2023June 29, 2022
 (In thousands)
Net cash provided by operating activities$35,651 $9,609 
Net cash used in investing activities(1,172)(6,675)
Net cash used in financing activities(36,872)(32,198)
Decrease in cash and cash equivalents$(2,393)$(29,264)
  
Net cash flows provided by operating activities were $35.7 million for the year-to-date period ended June 28, 2023 compared to $9.6 million for the year-to-date period ended June 29, 2022. The increase in cash flows provided by operating activities was primarily due to the timing of inventory purchases, receivable collections, and accrual payments related to our franchise kitchen equipment project over the past two years. We believe that our estimated cash flows from operations, combined with our capacity for additional borrowings under our credit facility and cash on hand, will enable us to meet our anticipated cash requirements and fund capital expenditures over the next 12 months.
 
Net cash flows used in investing activities were $1.2 million for the year-to-date period ended June 28, 2023. These cash flows included capital expenditures of $3.3 million and investment purchases of $1.3 million, partially offset by net proceeds from the sale of three parcels of real estate for $3.1 million. Net cash flows used in investing activities were $6.7 million for the year-to-date period ended June 29, 2022. These cash flows primarily consisted of capital expenditures of $5.8 million and investment purchases of $1.2 million.

Our principal capital requirements have been largely associated with the following:  
 Two Quarters Ended
 June 28, 2023June 29, 2022
 (In thousands)
Facilities$2,118 $2,004 
New construction 146 — 
Remodeling387 2,524 
Information technology419 824 
Other237 419 
Capital expenditures$3,307 $5,771 
 


27

Net cash flows used in financing activities were $36.9 million for the year-to-date period ended June 28, 2023, including cash payments for stock repurchases of $19.7 million, payments of tax withholding on share-based compensation of $3.0 million and net long-term debt payments of $15.4 million, partially offset by net bank overdrafts of $1.2 million. Net cash flows used in financing activities were $32.2 million for the year-to-date period ended June 29, 2022, which included cash payments for stock repurchases of $46.2 million and payments of tax withholding on share-based compensation of $4.8 million, partially offset by net long-term borrowings of $16.0 million and net bank overdrafts of $2.9 million.

Our working capital deficit was $49.9 million at June 28, 2023 compared to $43.3 million at December 28, 2022, primarily due to a decrease in receivables and inventories related to our franchise equipment projects during the year-to-date period ended June 28, 2023. We are able to operate with a substantial working capital deficit because (1) restaurant operations and most food service operations are conducted primarily on a cash (and cash equivalent) basis with a low level of accounts receivable, (2) rapid turnover allows for a limited investment in inventories, and (3) accounts payable for food, beverages and supplies usually becomes due after the receipt of cash from the related sales.

Credit Facility

The Company and certain of its subsidiaries have a credit facility consisting of a five-year $400 million senior secured revolver (with a $25 million letter of credit sublimit). The credit facility includes an accordion feature that would allow us to increase the size of the facility to $450 million. Borrowings bear a tiered interest rate, which is based on the Company's consolidated leverage ratio. The maturity date for the credit facility is August 26, 2026.

The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit facility is guaranteed by the Company and its material subsidiaries and is secured by assets of the Company and its subsidiaries, including the stock of its subsidiaries (other than its insurance captive subsidiary). It includes negative covenants that are usual for facilities and transactions of this type. The credit facility also includes certain financial covenants with respect to a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. We were in compliance with all financial covenants as of June 28, 2023.

As of June 28, 2023, we had outstanding revolver loans of $247.0 million and outstanding letters of credit under the credit facility of $12.3 million. These balances resulted in unused commitments of $140.7 million as of June 28, 2023 under the credit facility.

As of June 28, 2023, borrowings under the credit facility bore interest at a rate of Adjusted Daily Simple SOFR plus 2.25% and the commitment fee, paid on the unused portion of the credit facility, was set to 0.35%.

Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 7.40% and 6.37% as of June 28, 2023 and December 28, 2022, respectively. Taking into consideration our interest rate swaps that are designated as cash flow hedges, the weighted-average interest rate of outstanding revolver loans was 5.26% and 5.31% as of June 28, 2023 and December 28, 2022, respectively.

Technology Transformation Initiatives

The Company is rolling out a new cloud-based restaurant technology platform throughout the domestic system which will lay the foundation for future technology initiatives to further enhance the guest experience. The rollout is expected to continue into 2025. The Company has committed to investing approximately $4 million toward the new cloud-based restaurant technology platform in domestic franchise restaurants.

28

Contractual Obligations

Our future contractual obligations relating to long-term debt and related interest obligations as of June 28, 2023 are as follows:
 Payments Due by Period
 TotalLess than 1 Year1-2 Years3-4 Years5 Years and Thereafter
 (In thousands)
Long-term debt $247,000 $— $— $247,000 $— 
Interest obligations (a)40,338 6,422 25,215 8,701 — 
Total $287,338 $6,422 $25,215 $255,701 $— 
(a)Interest obligations represent payments related to our long-term debt outstanding at June 28, 2023. For long-term debt with variable rates, we have used the rate applicable at June 28, 2023 to project interest over the periods presented in the table above, taking into consideration the impact of the interest rate swaps that are designated as cash flow hedges for the applicable periods.

See Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 28, 2022 for information concerning other future contractual obligations and commitments.

Critical Accounting Policies and Estimates

For information regarding our Critical Accounting Policies and Estimates, see the "Critical Accounting Policies and Estimates" section in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 28, 2022.


Implementation of New Accounting Standards

Information regarding the implementation of new accounting standards is incorporated by reference from Note 2 to our unaudited Consolidated Financial Statements set forth in Part I, Item 1 of this report.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We have exposure to interest rate risk related to certain instruments entered into for other than trading purposes. Specifically, as of June 28, 2023, borrowings under our credit facility bore interest at variable rates based on Adjusted Daily Simple SOFR plus 2.25% per annum.

We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt. A summary of our interest rate swaps as of June 28, 2023 is as follows:

Trade DateEffective DateMaturity DateNotional AmountFair ValueFixed Rate
(In thousands)
Swaps designated as cash flow hedges
March 20, 2015March 29, 2018March 31, 2025$120,000 $4,814 2.34 %
October 1, 2015March 29, 2018March 31, 2026$50,000 $2,417 2.37 %
February 15, 2018March 31, 2020December 31, 2033$26,000 (1)$3,366 3.09 %
Total$196,000 $10,597 

(1)     The notional amounts of the swaps entered into on February 15, 2018 increase periodically until they reach the maximum notional amount of $335 million on August 31, 2033.
29

On March 31, 2023, the Company entered into an amendment of its credit facility. The amendment transitions our credit facility benchmark interest rate from LIBOR to Adjusted Daily Simple SOFR, as such the fixed rate in the table above has been adjusted to the appropriate fixed rate. The conversion to Adjusted Daily Simple SOFR is not expected to have a material impact on the Company's consolidated financial position or results of operations.

As of June 28, 2023, our swaps effectively increased our ratio of fixed rate debt from 4% of total debt to 80% of total debt. Based on the levels of borrowings under the credit facility at June 28, 2023, if interest rates changed by 100 basis points, our annual cash flow and income before taxes would change by $0.4 million. This computation is determined by considering the impact of hypothetical interest rates on the credit facility at June 28, 2023, taking into consideration the interest rate swaps that will be in effect during the next 12 months. However, the nature and amount of our borrowings may vary as a result of future business requirements, market conditions and other factors.

Depending on market considerations, fluctuations in the fair values of our interest rate swaps could be significant. With the exception of these changes in the fair value of our interest rate swaps and in the levels of borrowings under our credit facility, there have been no material changes in our quantitative and qualitative market risks since the prior reporting period. For additional information related to our interest rate swaps, including changes in the fair value, refer to Note 6, Note 7 and Note 13 to our unaudited Consolidated Financial Statements in Part I, Item 1 of this report.
  
Item 4.     Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management conducted an evaluation (under the supervision and with the participation of our Chief Executive Officer, Kelli F. Valade, and our Executive Vice President and Chief Financial Officer, Robert P. Verostek) as of the end of the period covered by this Quarterly Report on Form 10-Q, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, Ms. Valade and Mr. Verostek each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to our management, including Ms. Valade and Mr. Verostek, as appropriate to allow timely decisions regarding required disclosure.

On July 20, 2022, we closed on the acquisition of substantially all of the assets of Keke’s. We are in the process of integrating Keke's into our internal control structure and expect that this effort will be completed in fiscal 2023.

Other than as discussed above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during our fiscal quarter ended June 28, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

Information regarding legal proceedings is incorporated by reference from Note 14 to our unaudited Consolidated Financial Statements set forth in Part I, Item 1 of this report.

Item 1A.     Risk Factors

There have been no material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 28, 2022.

30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

The table below provides information concerning repurchases of shares of our common stock during the quarter ended June 28, 2023.
Period 
Total Number of Shares Purchased
 Average Price Paid Per Share (1)
Total Number of Shares Purchased as Part of Publicly Announced Programs (2)
Dollar Value of Shares that May Yet be Purchased Under the Programs (2)
 (In thousands, except per share amounts)
March 30, 2023 - April 26, 2023328 $11.08 328 $139,924 
April 27, 2023 - May 24, 2023374 10.90 374 $135,833 
May 25, 2023 - June 28, 2023222 11.68 222 $133,138 
Total924 $11.15 924  
(1)Average price paid per share excludes commissions and any excise taxes paid.
(2)On December 2, 2019, we announced that our Board of Directors approved a share repurchase program, authorizing us to repurchase up to an additional $250 million of our common stock (in addition to prior authorizations). Such repurchases may take place from time to time in the open market (including pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Exchange Act) or in privately negotiated transactions, subject to market and business conditions. During the quarter ended June 28, 2023, we purchased 0.9 million shares of our common stock for an aggregate consideration of $10.4 million pursuant to the share repurchase program.


Item 5. Other Information

Rule 10b5-1 Trading Plans

During the quarter ended June 28, 2023, none of the Company’s directors or officers informed the Company of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.



31

Item 6.     Exhibits
 
The following are included as exhibits to this report: 
Exhibit No.Description 
31.1
  
31.2
  
32.1
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
  
101.SCHInline XBRL Taxonomy Extension Schema Document
  
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
  
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
  
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
  
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

32

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 DENNY'S CORPORATION 
    
Date:August 1, 2023By:    /s/ Robert P. Verostek 
  Robert P. Verostek 
  Executive Vice President and
Chief Financial Officer		 
    
Date:August 1, 2023By:    /s/ Jay C. Gilmore 
  Jay C. Gilmore 
  Senior Vice President,
Chief Accounting Officer and
Corporate Controller		 
33