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 ~~September 29, 2021~~March 30, 2022

☐ 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

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 Carolina	29319-0001
(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 class

Trading Symbol(s)

Name of each exchange on which registered

$.01 Par Value, Common Stock

DENN

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

☐ý

Accelerated Filer

ý☐

Non-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 ~~October~~April 28, ~~2021, 63,386,061~~2022, 61,712,452 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Denny’s Corporation and Subsidiaries

~~Condensed~~ Consolidated Balance Sheets

(Unaudited)


		September 29, 2021		December 30, 2020			March 30, 2022		December 29, 2021
		(In thousands)					(In thousands)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	10,203	$	3,892	Cash and cash equivalents	$	6,091	$	30,624
Investments	Investments	2,082		2,272		Investments	3,687		2,551
Receivables, net	Receivables, net	16,903		21,349		Receivables, net	23,161		19,621
Inventories	Inventories	1,230		1,181		Inventories	9,829		5,060
Assets held for sale	Assets held for sale	1,627		1,125		Assets held for sale	1,322		—
Prepaid and other current assets	Prepaid and other current assets	14,550		18,847		Prepaid and other current assets	7,941		11,393
Total current assets	Total current assets	46,595		48,666		Total current assets	52,031		69,249
Property, net of accumulated depreciation of $151,887 and $146,583, respectively		81,897		86,154
Financing lease right-of-use assets, net of accumulated amortization of $11,217 and $9,907, respectively		9,403		9,830
Property, net of accumulated depreciation of $150,914 and $151,836, respectively						Property, net of accumulated depreciation of $150,914 and $151,836, respectively	89,878		91,176
Financing lease right-of-use assets, net of accumulated amortization of $9,772 and $11,210, respectively						Financing lease right-of-use assets, net of accumulated amortization of $9,772 and $11,210, respectively	7,399		7,709
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	131,616		139,534		Operating lease right-of-use assets, net	125,012		128,727
Goodwill	Goodwill	36,884		36,884		Goodwill	36,884		36,884
Intangible assets, net	Intangible assets, net	50,559		51,559		Intangible assets, net	49,892		50,226
Deferred financing costs, net	Deferred financing costs, net	3,123		2,414		Deferred financing costs, net	2,813		2,971
Deferred income taxes, net	Deferred income taxes, net	18,069		23,210		Deferred income taxes, net	5,139		11,502
Other noncurrent assets	Other noncurrent assets	32,878		32,698		Other noncurrent assets	32,346		37,083
Total assets	Total assets	$	411,024	$	430,949	Total assets	$	401,394	$	435,527
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Current finance lease liabilities	Current finance lease liabilities	$	2,016	$	1,839	Current finance lease liabilities	$	1,962	$	1,952
Current operating lease liabilities	Current operating lease liabilities	15,907		16,856		Current operating lease liabilities	15,406		15,829
Accounts payable	Accounts payable	15,152		12,021		Accounts payable	12,998		15,595
Other current liabilities	Other current liabilities	56,985		46,462		Other current liabilities	48,524		64,146
Total current liabilities	Total current liabilities	90,060		77,178		Total current liabilities	78,890		97,522
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Long-term debt	Long-term debt	170,000		210,000		Long-term debt	171,500		170,000
Noncurrent finance lease liabilities	Noncurrent finance lease liabilities	12,825		13,530		Noncurrent finance lease liabilities	10,374		10,744
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	129,409		137,534		Noncurrent operating lease liabilities	122,470		126,296
Liability for insurance claims, less current portion	Liability for insurance claims, less current portion	9,037		10,309		Liability for insurance claims, less current portion	7,860		8,438
Other noncurrent liabilities	Other noncurrent liabilities	89,330		112,844		Other noncurrent liabilities	58,055		87,792
Total long-term liabilities	Total long-term liabilities	410,601		484,217		Total long-term liabilities	370,259		403,270
Total liabilities	Total liabilities	500,661		561,395		Total liabilities	449,149		500,792
Shareholders' deficit	Shareholders' deficit					Shareholders' deficit
Common stock $0.01 par value; 135,000 shares authorized; September 29, 2021: 64,200 shares issued and 63,795 outstanding; December 30, 2020: 63,962 shares issued and outstanding		$	642	$	640
Common stock $0.01 par value; 135,000 shares authorized; March 30, 2022: 64,457 shares issued and 61,713 outstanding; December 29, 2021: 64,200 shares issued and 62,210 shares outstanding						Common stock $0.01 par value; 135,000 shares authorized; March 30, 2022: 64,457 shares issued and 61,713 outstanding; December 29, 2021: 64,200 shares issued and 62,210 shares outstanding	$	645	$	642
Paid-in capital	Paid-in capital	132,436		123,833		Paid-in capital	137,332		135,596
Deficit	Deficit	(159,896)		(194,514)		Deficit	(94,586)		(116,441)
Accumulated other comprehensive loss, net	Accumulated other comprehensive loss, net	(56,256)		(60,405)		Accumulated other comprehensive loss, net	(48,689)		(54,470)
Treasury stock, at cost, 405 and 0 shares, respectively		(6,563)		—
Treasury stock, at cost, 2,744 and 1,990 shares, respectively						Treasury stock, at cost, 2,744 and 1,990 shares, respectively	(42,457)		(30,592)
Total shareholders' deficit	Total shareholders' deficit	(89,637)		(130,446)		Total shareholders' deficit	(47,755)		(65,265)
Total liabilities and shareholders' deficit	Total liabilities and shareholders' deficit	$	411,024	$	430,949	Total liabilities and shareholders' deficit	$	401,394	$	435,527

See accompanying notes

Denny’s Corporation and Subsidiaries

~~Condensed~~ Consolidated Statements of Operations

(Unaudited)


		Quarter Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands, except per share amounts)										(In thousands, except per share amounts)
Revenue:	Revenue:									Revenue:
Company restaurant sales	Company restaurant sales	$	46,470	$	27,849	$	127,611	$	85,268	Company restaurant sales		$	43,976	$	33,569
Franchise and license revenue	Franchise and license revenue	57,324		43,795		162,924		123,232		Franchise and license revenue		59,131		47,007
Total operating revenue	Total operating revenue	103,794		71,644		290,535		208,500		Total operating revenue		103,107		80,576
Costs of company restaurant sales, excluding depreciation and amortization:	Costs of company restaurant sales, excluding depreciation and amortization:									Costs of company restaurant sales, excluding depreciation and amortization:
Product costs	Product costs	11,430		7,106		31,149		21,541		Product costs		11,244		8,272
Payroll and benefits	Payroll and benefits	17,404		11,925		47,339		37,070		Payroll and benefits		17,086		12,965
Occupancy	Occupancy	3,013		2,638		8,707		8,529		Occupancy		3,240		2,850
Other operating expenses	Other operating expenses	6,722		5,701		19,351		15,954		Other operating expenses		7,055		6,077
Total costs of company restaurant sales	Total costs of company restaurant sales	38,569		27,370		106,546		83,094		Total costs of company restaurant sales		38,625		30,164
Costs of franchise and license revenue, excluding depreciation and amortization	Costs of franchise and license revenue, excluding depreciation and amortization	27,469		24,073		79,962		68,487		Costs of franchise and license revenue, excluding depreciation and amortization		30,669		23,758
General and administrative expenses	General and administrative expenses	16,497		13,694		50,992		34,589		General and administrative expenses		16,958		16,947
Depreciation and amortization	Depreciation and amortization	3,822		4,048		11,380		12,252		Depreciation and amortization		3,548		3,661
Operating (gains), losses and other charges, net	Operating (gains), losses and other charges, net	(215)		(781)		204		2,319		Operating (gains), losses and other charges, net		—		532
Total operating costs and expenses, net	Total operating costs and expenses, net	86,142		68,404		249,084		200,741		Total operating costs and expenses, net		89,800		75,062
Operating income	Operating income	17,652		3,240		41,451		7,759		Operating income		13,307		5,514
Interest expense, net	Interest expense, net	3,671		4,422		12,014		13,320		Interest expense, net		2,960		4,277
Other nonoperating expense (income), net		(2,368)		(8,477)		(16,165)		3,851
Income (loss) before income taxes		16,349		7,295		45,602		(9,412)
Provision for (benefit from) income taxes		4,084		818		10,984		(1,937)
Net income (loss)		$	12,265	$	6,477	$	34,618	$	(7,475)
Other nonoperating income, net										Other nonoperating income, net		(19,615)		(30,048)
Income before income taxes										Income before income taxes		29,962		31,285
Provision for income taxes										Provision for income taxes		8,107		8,104
Net income										Net income		$	21,855	$	23,181

Basic net income (loss) per share		$	0.19	$	0.10	$	0.53	$	(0.13)
Diluted net income (loss) per share		$	0.19	$	0.10	$	0.53	$	(0.13)
Net income per share - basic										Net income per share - basic		$	0.35	$	0.36
Net income per share - diluted										Net income per share - diluted		$	0.34	$	0.35

Basic weighted average shares outstanding	Basic weighted average shares outstanding	65,447		63,793		65,413		59,350		Basic weighted average shares outstanding		63,343		65,251
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	65,829		64,027		65,814		59,350		Diluted weighted average shares outstanding		63,580		65,749

See accompanying notes

Denny’s Corporation and Subsidiaries

~~Condensed~~ Consolidated Statements of Comprehensive Income ~~(Loss)~~

(Unaudited)

Quarter Ended Three Quarters Ended
September 29, 2021 September 23, 2020 September 29, 2021 September 23, 2020
(In thousands)
Net income (loss) $ 12,265 $ 6,477 $ 34,618 $ (7,475)
Other comprehensive income (loss), net of tax:
Minimum pension liability adjustment, net of tax of $10, $5, $31 and $17, respectively 30 17 89 50
Changes in the fair value of cash flow derivatives, net of tax of $14, $151, $585 and $(12,416), respectively 43 435 1,697 (34,723)
Reclassification of cash flow derivatives to interest expense, net of tax of $259, $121, $771 and $541, respectively 751 350 2,239 1,556
Reclassification of loss related to dedesignation of derivatives to other nonoperating expense (income), net of tax of $0, $0, $0 and $1,892, respectively — — — 5,462
Amortization of unrealized losses related to dedesignated derivatives to interest expense, net of tax of $0, $73, $42 and $142, respectively — 210 124 410
Other comprehensive income (loss) 824 1,012 4,149 (27,245)
Total comprehensive income (loss) $ 13,089 $ 7,489 $ 38,767 $ (34,720)


	Quarter Ended
		March 30, 2022		March 31, 2021
		(In thousands)
Net income		$	21,855	$	23,181
Other comprehensive income, net of tax:
Minimum pension liability adjustment, net of tax of $8 and $10, respectively		24		30
Changes in the fair value of cash flow derivatives, net of tax of $1,673 and $763, respectively		5,015		2,215
Reclassification of cash flow derivatives to interest expense, net of tax of $248 and $255, respectively		742		740

Amortization of unrealized losses related to dedesignated derivatives to interest expense, net of tax of $0 and $31, respectively		—		90
Other comprehensive income		5,781		3,075
Total comprehensive income		$	27,636	$	26,256

See accompanying notes

Denny’s Corporation and Subsidiaries

~~Condensed~~ Consolidated Statements of Shareholders’ Deficit

For the Quarter Ended ~~September 29,~~March 30, 2022 and March 31, 2021 ~~and September 23, 2020~~

(Unaudited)


		Common Stock			Treasury Stock			Paid-in Capital				Deficit			Accumulated Other Comprehensive Loss, Net				Total Shareholders’ Deficit				Common Stock						Treasury Stock			Paid-in Capital			Deficit			Accumulated Other Comprehensive Loss, Net			Total Shareholders’ Deficit
		Shares	Amount		Shares	Amount								Shares								Amount			Shares			Amount
		(In thousands)																					(In thousands)
Balance, June 30, 2021		64,200	$	642	—	$	—			$	129,176						$	(172,161)			$	(57,080)		(99,423)
Balance, December 29, 2021																						Balance, December 29, 2021	64,200			$	642		(1,990)	$	(30,592)		$	135,596		$	(116,441)		$	(54,470)		(65,265)

Net income	Net income	—	—		—	—		—				12,265			—				12,265			Net income	—			—			—	—		—			21,855			—			21,855
Other comprehensive income	Other comprehensive income	—	—		—	—		—				—			824				824			Other comprehensive income	—			—			—	—		—			—			5,781			5,781

Share-based compensation on equity classified awards, net of withholding tax	Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		3,260				—			—				3,260			Share-based compensation on equity classified awards, net of withholding tax	—			—			—	—		1,739			—			—			1,739
Purchase of treasury stock	Purchase of treasury stock	—	—		(405)	(6,563)		—				—			—				(6,563)			Purchase of treasury stock	—			—			(754)	(11,865)		—			—			—			(11,865)

Issuance of common stock for share-based compensation																						Issuance of common stock for share-based compensation	257			3			—	—		(3)			—			—			—

Balance, September 29, 2021		64,200	$	642	(405)	$	(6,563)	$	132,436			$	(159,896)		$	(56,256)			$	(89,637)
Balance, March 30, 2022																						Balance, March 30, 2022	64,457			$	645		(2,744)	$	(42,457)	$	137,332		$	(94,586)		$	(48,689)		$	(47,755)


		Common Stock			Treasury Stock			Paid-in Capital				Deficit			Accumulated Other Comprehensive Loss, Net				Total Shareholders’ Deficit				Common Stock						Treasury Stock			Paid-in Capital			Deficit			Accumulated Other Comprehensive Loss, Net			Total Shareholders’ Deficit
		Shares	Amount		Shares	Amount								Shares								Amount			Shares			Amount
		(In thousands)																					(In thousands)
Balance, June 24, 2020		109,719	$	1,097	(54,010)	$	(553,973)			$	600,936						$	(203,350)			$	(62,217)		$	(217,507)
Balance, December 30, 2020																						Balance, December 30, 2020	63,962			$	640		—	$	—		$	123,833		$	(194,514)		$	(60,405)		$	(130,446)

Net income	Net income	—	—		—	—		—				6,477			—				6,477			Net income	—			—			—	—		—			23,181			—			23,181
Other comprehensive income	Other comprehensive income	—	—		—	—		—				—			1,012				1,012			Other comprehensive income	—			—			—	—		—			—			3,075			3,075
Issuance of common stock		8,000	80					69,491				—			—				69,571

Share-based compensation on equity classified awards, net of withholding tax	Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		1,930				—			—				1,930			Share-based compensation on equity classified awards, net of withholding tax	—			—			—	—		2,002			—			—			2,002

Issuance of common stock for share-based compensation	Issuance of common stock for share-based compensation	22	—		—	—		—				—			—				—			Issuance of common stock for share-based compensation	153			1			—	—		(1)			—			—			—
Exercise of common stock options	Exercise of common stock options	37	1		—	—		145				—			—				146			Exercise of common stock options	30			—			—	—		116			—			—			116
Balance, September 23, 2020		117,778	$	1,178	(54,010)	$	(553,973)	$	672,502			$	(196,873)		$	(61,205)			$	(138,371)
Balance, March 31, 2021																						Balance, March 31, 2021	64,145			$	641		—	$	—	$	125,950		$	(171,333)		$	(57,330)		$	(102,072)

See accompanying notes

Denny’s Corporation and Subsidiaries

~~Condensed~~ Consolidated Statements of ~~Shareholders’ Deficit~~

~~For the Three Quarters Ended September 29, 2021 and September 23, 2020~~Cash Flows

(Unaudited)

Common Stock Treasury Stock Paid-in Capital Deficit Accumulated
Other
Comprehensive Loss, Net Total
Shareholders’
Deficit
Shares Amount Shares Amount
(In thousands)
Balance, December 30, 2020 63,962 $ 640 — $ — $ 123,833 $ (194,514) $ (60,405) $ (130,446)
Net income — — — — — 34,618 — 34,618
Other comprehensive income — — — — — — 4,149 4,149
Share-based compensation on equity classified awards, net of withholding tax — — — — 8,489 — — 8,489
Purchase of treasury stock — — (405) (6,563) — — — (6,563)
Issuance of common stock for share-based compensation 208 2 — — (2) — — —
Exercise of common stock options 30 — — — 116 — — 116
Balance, September 29, 2021 64,200 $ 642 (405) $ (6,563) $ 132,436 $ (159,896) $ (56,256) $ (89,637)

Common Stock Treasury Stock Paid-in Capital Deficit Accumulated
Other
Comprehensive Loss, Net Total
Shareholders’
Deficit
Shares Amount Shares Amount
(In thousands)
Balance, December 25, 2019 109,415 $ 1,094 (52,320) $ (519,780) $ 603,980 $ (189,398) $ (33,960) $ (138,064)
Net loss — — — — — (7,475) — (7,475)
Other comprehensive loss — — — — — — (27,245) (27,245)
Issuance of common stock 8,000 80 — — 69,491 — — 69,571
Share-based compensation on equity classified awards, net of withholding tax — — — — (1,177) — — (1,177)
Purchase of treasury stock — — (1,690) (34,193) — — — (34,193)
Issuance of common stock for share-based compensation 309 3 — — (3) — — —
Exercise of common stock options 54 1 — — 211 — — 212
Balance, September 23, 2020 117,778 $ 1,178 (54,010) $ (553,973) $ 672,502 $ (196,873) $ (61,205) $ (138,371)


	Quarter Ended
	March 30, 2022		March 31, 2021
	(In thousands)
Cash flows from operating activities:
Net income	$	21,855	$	23,181
Adjustments to reconcile net income to cash flows provided by (used in) operating activities:
Depreciation and amortization	3,548		3,661
Operating (gains), losses and other charges, net	—		532
Gains and amortization on interest rate swap derivatives, net	(20,253)		(29,733)
Amortization of deferred financing costs	158		344
Losses on investments	65		8
Losses on early termination of debt and leases	24		34
Deferred income tax expense	4,436		4,099
Share-based compensation expense	4,015		3,472
Changes in assets and liabilities:
Receivables	(3,567)		353
Inventories	(4,768)		13
Prepaids and other current assets	3,451		5,294
Other noncurrent assets	4,085		(201)
Operating lease assets and liabilities	(244)		(604)
Accounts payable	(2,405)		1,820
Accrued payroll	(7,475)		(1,704)
Accrued taxes	(1)		(380)
Other accrued liabilities	(7,488)		1,195
Other noncurrent liabilities	(2,500)		(1,149)
Net cash flows provided by (used in) operating activities	(7,064)		10,235
Cash flows from investing activities:
Capital expenditures	(2,778)		(1,583)


Proceeds from sales of restaurants, real estate and other assets	108		1,348
Investment purchases	(1,200)		—
Proceeds from sale of investments	—		200
Collections on notes receivable	67		215

Net cash flows provided by (used in) investing activities	(3,803)		180
Cash flows from financing activities:
Revolver borrowings	13,825		7,500
Revolver payments	(12,325)		(2,500)
Long-term debt payments	(503)		(473)
Proceeds from exercise of stock options	—		116
Tax withholding on share-based payments	(2,165)		(1,309)
Deferred financing costs	—		(8)
Purchase of treasury stock	(12,498)		—

Net bank overdrafts	—		(3,125)
Net cash flows provided by (used in) financing activities	(13,666)		201
Increase (decrease) in cash and cash equivalents	(24,533)		10,616
Cash and cash equivalents at beginning of period	30,624		3,892
Cash and cash equivalents at end of period	$	6,091	$	14,508

See accompanying notes

Denny’s Corporation and Subsidiaries

~~Condensed Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

Three Quarters Ended
September 29, 2021 September 23, 2020
(In thousands)
Cash flows from operating activities:
Net income (loss) $ 34,618 $ (7,475)
Adjustments to reconcile net income (loss) to cash flows provided by (used in) operating activities:
Depreciation and amortization 11,380 12,252
Operating (gains), losses and other charges, net 204 2,319
(Gains) losses and amortization on interest rate swap derivatives, net (14,771) 4,185
Amortization of deferred financing costs 946 591
Gains on investments (11) (117)
(Gains) losses on early termination of debt and leases (52) 43
Deferred income tax expense (benefit) 3,713 (2,505)
Share-based compensation expense 10,212 1,972
Changes in assets and liabilities:
Receivables 4,182 7,465
Inventories (49) 265
Prepaids and other current assets 4,296 (3,865)
Other noncurrent assets (1,021) 474
Operating lease assets and liabilities (1,150) 1,231
Accounts payable 6,360 (8,540)
Accrued payroll 1,462 (8,739)
Accrued taxes 1,253 971
Other accrued liabilities 5,890 (6,512)
Other noncurrent liabilities (4,233) (5,625)
Net cash flows provided by (used in) operating activities 63,229 (11,610)
Cash flows from investing activities:
Capital expenditures (5,321) (5,476)
Proceeds from sales of real estate and other assets 1,785 4,536
Investment purchases — (1,400)
Proceeds from sale of investments 200 2,900
Collections on notes receivable 539 1,385
Issuance of notes receivable (115) (670)
Net cash flows provided by (used in) investing activities (2,912) 1,275
Cash flows from financing activities:
Revolver borrowings 181,000 140,500
Revolver payments (221,000) (150,500)
Long-term debt payments (1,583) (1,115)
Proceeds from exercise of stock options 116 212
Tax withholding on share-based payments (1,377) (3,049)
Deferred financing costs (1,809) (982)
Purchase of treasury stock (6,228) (36,008)
Proceeds from issuance of common stock — 69,571
Net bank overdrafts (3,125) (449)
Net cash flows provided by (used in) financing activities (54,006) 18,180
Increase in cash and cash equivalents 6,311 7,845
Cash and cash equivalents at beginning of period 3,892 3,372
Cash and cash equivalents at end of period $ 10,203 $ 11,217

~~See accompanying notes~~

~~Denny’s Corporation and Subsidiaries~~

Notes to ~~Condensed~~ Consolidated Financial Statements

(Unaudited)

Note 1. Introduction and Basis of Presentation

Denny’s Corporation, or Denny’s or the Company, is one of America’s largest full-service restaurant chains based on number of restaurants. At ~~September 29, 2021,~~March 30, 2022, the Denny's brand consisted of ~~1,647~~1,634 restaurants, ~~1,582~~1,569 of which were franchised/licensed restaurants and 65 of which were company operated.

The global crisis resulting from the spread of coronavirus ("COVID-19") has had a substantial impact on our restaurant operations starting in the quarter ended March 25, 2020 with continuing impacts into the current quarter ended ~~September 29, 2021.~~March 30, 2022. While we have seen improvements compared to earlier periods during the COVID-19 pandemic, we cannot currently estimate the duration or future financial impact of the COVID-19 pandemic on our business. Ongoing material adverse effects of the COVID-19 pandemic 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 ~~condensed~~ consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. 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 ~~condensed~~ 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 ~~30, 2020~~29, 2021 which are contained in our audited Annual Report on Form 10-K for the fiscal year ended December ~~30, 2020.~~29, 2021. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire fiscal year ending December ~~29, 2021.~~28, 2022. 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 ~~December 2019,~~March 2020, the FASB issued ~~ASU 2019-12, "Income Taxes~~(Topic 740): Simplifying the Accounting for Income Taxes", which modifies Topic 740 to simplify the accounting for income taxes. ASU 2019-12 is effective for financial statements issued for annual periods beginning after December 15, 2020, and for the interim periods therein. The adoption of ASU 2019-12 did not have a significant impact on the Company’s consolidated financial position or results of operations.

~~Accounting Standards to be Adopted~~

~~In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” which clarified the guidance issued in March 2020,~~ 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”. 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, 2022. ~~The Company is currently evaluating the impact that the adoption of this new guidance will have on our consolidated financial position or results of operations.~~

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.

Note 3. Receivables

Receivables consisted of the following:


		September 29, 2021		December 30, 2020			March 30, 2022		December 29, 2021
		(In thousands)					(In thousands)
Receivables, net:	Receivables, net:					Receivables, net:
Trade accounts receivable from franchisees	Trade accounts receivable from franchisees	$	13,194	$	15,535	Trade accounts receivable from franchisees	$	12,897	$	13,430
Financing receivables from franchisees	Financing receivables from franchisees	1,022		2,104		Financing receivables from franchisees	2,811		1,027

Vendor receivables	Vendor receivables	2,396		2,199		Vendor receivables	2,803		4,041
Credit card receivables	Credit card receivables	473		542		Credit card receivables	625		747
Other	Other	742		2,668		Other	4,574		950
Allowance for doubtful accounts	Allowance for doubtful accounts	(924)		(1,699)		Allowance for doubtful accounts	(549)		(574)
Total receivables, net	Total receivables, net	$	16,903	$	21,349	Total receivables, net	$	23,161	$	19,621

Other noncurrent assets:	Other noncurrent assets:					Other noncurrent assets:
Financing receivables from franchisees	Financing receivables from franchisees	$	342	$	502	Financing receivables from franchisees	$	252	$	293

Note 4. Intangible Assets

Intangible assets consisted of the following:


		September 29, 2021				December 30, 2020					March 30, 2022				December 29, 2021
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
		(In thousands)									(In thousands)
Intangible assets with indefinite lives:	Intangible assets with indefinite lives:									Intangible assets with indefinite lives:
Trade names	Trade names	$	44,087	$	—	$	44,087	$	—	Trade names	$	44,087	$	—	$	44,087	$	—
Liquor licenses	Liquor licenses	120		—		120		—		Liquor licenses	120		—		120		—
Intangible assets with definite lives:	Intangible assets with definite lives:									Intangible assets with definite lives:
Reacquired franchise rights	Reacquired franchise rights	12,218		5,866		12,218		4,866		Reacquired franchise rights	11,801		6,116		12,218		6,199
Intangible assets, net	Intangible assets, net	$	56,425	$	5,866	$	56,425	$	4,866	Intangible assets, net	$	56,008	$	6,116	$	56,425	$	6,199

Note 5. Other Current Liabilities

Other current liabilities consisted of the following:


		September 29, 2021		December 30, 2020			March 30, 2022		December 29, 2021
		(In thousands)					(In thousands)
Accrued payroll	Accrued payroll	$	18,973	$	17,076	Accrued payroll	$	13,232	$	20,676
Current portion of liability for insurance claims	Current portion of liability for insurance claims	4,371		4,667		Current portion of liability for insurance claims	3,947		4,285
Accrued taxes	Accrued taxes	6,103		4,850		Accrued taxes	4,532		4,533
Accrued advertising	Accrued advertising	12,350		4,318		Accrued advertising	9,538		15,355
Gift cards	Gift cards	5,204		6,127		Gift cards	5,818		7,170
Other	Other	9,984		9,424		Other	11,457		12,127
Other current liabilities	Other current liabilities	$	56,985	$	46,462	Other current liabilities	$	48,524	$	64,146

109

Note 6. Fair Value of Financial Instruments

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:


		Total		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(In thousands)									(In thousands)
Fair value measurements as of September 29, 2021:
Fair value measurements as of March 30, 2022:										Fair value measurements as of March 30, 2022:
Deferred compensation plan investments (1)										Deferred compensation plan investments (1)	$	12,925	$	12,925	$	—	$	—
Interest rate swaps, net (2)										Interest rate swaps, net (2)	(23,264)		—		(23,264)		—
Investments (3)										Investments (3)	3,687		—		3,687		—
Total										Total	$	(6,652)	$	12,925	$	(19,577)	$	—

Fair value measurements as of December 29, 2021:										Fair value measurements as of December 29, 2021:
Deferred compensation plan investments (1)	Deferred compensation plan investments (1)	$	13,626	$	13,626	$	—	$	—	Deferred compensation plan investments (1)	$	13,726	$	13,726	$	—	$	—
Interest rate swaps (2)	Interest rate swaps (2)	(53,874)		—		(53,874)		—		Interest rate swaps (2)	(52,121)		—		(52,121)		—
Investments (3)	Investments (3)	2,082		—		2,082		—		Investments (3)	2,551		—		2,551		—
Total	Total	$	(38,166)	$	13,626	$	(51,792)	$	—	Total	$	(35,844)	$	13,726	$	(49,570)	$	—

Fair value measurements as of December 30, 2020:
Deferred compensation plan investments (1)		$	13,627	$	13,627	$	—	$	—
Interest rate swaps (2)		(76,445)		—		(76,445)		—
Investments (3)		2,272		—		2,272		—
Total		$	(60,546)	$	13,627	$	(74,173)	$	—

(1) The fair values of our deferred compensation plan investments are based on the closing market prices of the elected ~~investments.~~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 and forward yield curves. See Note 7 for details on the interest rate swaps.

(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.

The carrying amounts of cash and cash equivalents, 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 outstanding senior secured revolver is 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).

Note 7. Long-Term Debt

~~Refinancing of Credit Facility~~

~~On August 26, 2021, the Company~~Denny's and certain of its subsidiaries ~~refinanced the existing~~have a credit facility ~~(the "Old Credit Facility") and entered into~~consisting of a ~~new~~ five-year $400 million senior secured revolver (with a $25 million letter of credit sublimit) ~~(the "New Credit Facility")~~. The ~~New Credit Facility~~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 and is initially set at LIBOR plus 2.25%.~~ratio. The maturity date for the ~~New Credit Facility~~credit facility is August 26, 2026.

The ~~New Credit Facility was used to refinance the Old Credit Facility and~~credit facility is available for working capital, capital expenditures and other general corporate purposes. The ~~New Credit Facility~~credit facility is guaranteed by Denny's and its material subsidiaries and is secured by assets of Denny's 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 ~~New Credit Facility~~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 ~~September 29, 2021.~~March 30, 2022.

As of ~~September 29, 2021,~~March 30, 2022, we had outstanding revolver loans of ~~$170.0~~$171.5 million and outstanding letters of credit under the ~~New Credit Facility~~credit facility of $15.7 million. These balances resulted in ~~availability~~unused commitments of ~~$214.3~~$212.8 million as of ~~September 29, 2021~~March 30, 2022 under the ~~New Credit Facility.~~credit facility.

As of ~~September 29, 2021,~~March 30, 2022, borrowings under the ~~New Credit Facility~~credit facility bore interest at a rate of LIBOR plus ~~2.25%~~1.75% and the commitment fee, paid on the unused portion of the ~~New Credit Facility,~~credit facility, was set to ~~0.35%~~0.25%.

1110

Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was ~~2.33%~~1.98% and ~~3.15%~~2.09% as of ~~September~~March 30, 2022 and December 29, 2021, ~~and December 30, 2020,~~ 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 ~~4.69%~~4.19% and ~~5.01%~~4.44% as of ~~September~~March 30, 2022 and December 29, 2021, ~~and December 30, 2020,~~ respectively.

Interest Rate Hedges

We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt. We initially designated the interest rate swaps as cash flow hedges of our exposure to variability in future cash flows attributable to variable interest payments due on forecasted notional amounts. A summary of our interest rate swaps as of ~~September 29, 2021~~March 30, 2022 is as follows:


Trade Date	Trade Date	Effective Date	Maturity Date	Notional Amount			Fair Value		Fixed Rate		Trade Date	Effective Date	Maturity Date	Notional Amount			Fair Value		Fixed Rate
				(In thousands)										(In thousands)
Swaps designated as cash flow hedges	Swaps designated as cash flow hedges										Swaps designated as cash flow hedges
March 20, 2015	March 20, 2015	March 29, 2018	March 31, 2025	$	120,000		$	7,208	2.44	%	March 20, 2015	March 29, 2018	March 31, 2025	$	120,000		$	104	2.44	%
October 1, 2015	October 1, 2015	March 29, 2018	March 31, 2026	$	50,000		$	3,429	2.46	%	October 1, 2015	March 29, 2018	March 31, 2026	$	50,000		$	(59)	2.46	%
Dedesignated swaps	Dedesignated swaps										Dedesignated swaps
February 15, 2018	February 15, 2018	March 31, 2020	December 31, 2033	$	100,000	(1)	$	43,237	3.19	%	February 15, 2018	March 31, 2020	December 31, 2033	$	120,000	(1)	$	(23,309)	3.19	%
Total	Total			$	270,000		$	53,874			Total			$	290,000		$	(23,264)

(1) The notional amounts of the swaps entered into on February 15, 2018 increase periodically until they reach the maximum notional amount of $425.0 million on September 28, 2029.

Swaps Designated as Cash Flow Hedges

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).~~income. The interest rate swaps entered into in 2015 are designated as cash flow hedges with unrealized gain and losses recorded as a component of accumulated other comprehensive loss, net.

As of ~~September 29, 2021,~~March 30, 2022, the fair value of the swaps designated as cash flow hedges was a ~~liability~~net asset of ~~$10.6 million and~~less than $0.1 million. One was recorded as an asset of $0.1 million as a component of other noncurrent ~~liabilities with~~assets and the other as a liability of $0.1 million as a component of other noncurrent liabilities. The designated swaps have an offsetting amount (before taxes) recorded as a component of accumulated other comprehensive loss, net in our ~~Condensed~~ Consolidated Balance Sheets. See Note 13 for amounts recorded in accumulated other comprehensive loss related to interest rate swaps. We expect to reclassify approximately ~~$4.0~~$3.4 million from accumulated other comprehensive loss, net to interest expense, net in our Consolidated Statements of Operations related to swaps designated as cash flow hedges during the next 12twelve months.

Dedesignated Interest Rate Hedges

During the year ended December 30, 2020, we determined that a portion of the underlying cash flows related to our hedging relationship entered into in 2018 (“2018 Swaps”) were no longer probable of occurring over the term of the interest rate swaps. Accordingly, we dedesignated the cash flow relationship and discontinued hedge accounting treatment for the 2018 Swaps. As a result, we reclassified a portion of losses from accumulated other comprehensive loss, net to other nonoperating ~~expense (income),~~income, net in our Consolidated Statements of Operations and began amortizing the remaining amounts of unrealized losses related to the 2018 Swaps from accumulated other comprehensive loss, net into our Consolidated Statements of Operations as a component of interest expense, net over the remaining term of the 2018 Swaps. For the quarter ~~and three quarters~~ ended ~~September 29, 2021,~~March 30, 2022, no unrealized losses ~~and approximately $0.2 million of unrealized losses, respectively,~~ were reclassified to interest expense, net related to the 2018 Swaps. For the quarter ~~and three quarters~~ ended ~~September 23, 2020,~~March 31, 2021, we reclassified unrealized losses of approximately ~~$0.3~~$0.1 million ~~and $0.6 million, respectively,~~ to interest expense, net related to the 2018 Swaps. At ~~September 29, 2021,~~March 30, 2022, approximately $64.2 million (before taxes) of unrealized losses remained in accumulated other comprehensive loss, net. We expect to amortize less than $0.1 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 12twelve months.

1211

As a result of the dedesignated cash flow relationship related to the 2018 Swaps, changes in the fair value of the 2018 Swaps are recorded as a component of other nonoperating ~~expense (income),~~income, net in our Consolidated Statements of Operations. For the quarter ~~and three quarters~~ ended ~~September 29, 2021,~~March 30, 2022, we recorded income of approximately ~~$2.3~~$20.3 million ~~and $14.9 million, respectively,~~ as a component of other nonoperating ~~expense (income)~~income, net related to the 2018 Swaps resulting from changes in fair value. For the quarter ~~and three quarters~~ ended ~~September 23, 2020,~~March 31, 2021, we recorded income of approximately ~~$7.8~~$29.9 million ~~and $3.7 million, respectively,~~ as a component of other nonoperating ~~expense (income)~~income, net related to the 2018 Swaps resulting from changes in fair value. As of ~~September 29, 2021,~~March 30, 2022, the fair value of the dedesignated interest rate swaps was a liability of ~~$43.2~~$23.3 million, $0.3 million of which was recorded as a component of other current liabilities and $23.0 million of which was recorded as a component of other noncurrent liabilities in our ~~Condensed~~ Consolidated Balance Sheets.

Note 8. Revenues

Our revenues are derived primarily from 2 sales channels, which we operate as 1 segment: company restaurants and franchised and licensed restaurants. The following table disaggregates our revenue by sales channel and type of good or service:


		Quarter Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands)										(In thousands)
Company restaurant sales	Company restaurant sales	$	46,470	$	27,849	$	127,611	$	85,268	Company restaurant sales		$	43,976	$	33,569
Franchise and license revenue:	Franchise and license revenue:									Franchise and license revenue:
Royalties	Royalties	27,336		17,896		75,297		48,462		Royalties		26,525		20,844
Advertising revenue	Advertising revenue	18,215		13,927		50,926		38,685		Advertising revenue		18,206		14,111
Initial and other fees	Initial and other fees	1,442		1,890		5,346		4,933		Initial and other fees		4,507		1,838
Occupancy revenue	Occupancy revenue	10,331		10,082		31,355		31,152		Occupancy revenue		9,893		10,214
Franchise and license revenue	Franchise and license revenue	57,324		43,795		162,924		123,232		Franchise and license revenue		59,131		47,007
Total operating revenue	Total operating revenue	$	103,794	$	71,644	$	290,535	$	208,500	Total operating revenue		$	103,107	$	80,576

Franchise occupancy revenue consisted of the following:


		Quarter Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands)										(In thousands)
Operating lease revenue	Operating lease revenue	$	7,594	$	8,277	$	23,175	$	24,959	Operating lease revenue		$	7,418	$	7,913
Variable lease revenue	Variable lease revenue	2,737		1,805		8,180		6,193		Variable lease revenue		2,475		2,301
Total occupancy revenue	Total occupancy revenue	$	10,331	$	10,082	$	31,355	$	31,152	Total occupancy revenue		$	9,893	$	10,214

Balances related to contracts with customers consist of receivables, deferred franchise revenue and deferred gift card revenue. See Note 3 for details on our receivables.

The components of the change in deferred franchise revenue are as follows:


	(In thousands)
Balance, December 29, 2021	$	19,896
Fees received from franchisees	1,199
Franchisee deferred costs (1)	(626)
Revenue recognized, net (2)	(739)
Balance, March 30, 2022	19,730
Less current portion included in other current liabilities	1,928
Deferred franchise revenue included in other noncurrent liabilities	$	17,802

(1) Deferred costs are contract assets consisting of incentives given to franchisees related to the rollout of kitchen equipment to all franchise locations.

(2) Of this amount $0.6 million was included in the deferred franchise revenue balance as of December 29, 2021.

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 we will begin amortizing into revenue when the related restaurants are ~~opened.~~opened net of certain deferred costs. 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~~Company has entered into equipment purchase contracts of approximately $18.3 million related to the rollout of kitchen equipment for franchise restaurants, which will be paid by the franchisees as the equipment is installed, less approximately $5.7 million in commitments from the Company. Amounts committed from the Company are contract assets that have been netted against deferred revenue and will be recognized as a component of franchise and license revenue over the remaining term of the ~~change in deferred~~related franchise ~~revenue are as follows:~~


	~~(In thousands)~~
~~Balance, December 30, 2020~~	$	~~20,806~~
~~Fees received from franchisees~~	~~381~~
~~Revenue recognized~~ ~~(1)~~	~~(1,721)~~
~~Balance, September 29, 2021~~	~~19,466~~
~~Less current portion included in other current liabilities~~	~~1,924~~
~~Deferred franchise revenue included in other noncurrent liabilities~~	$	~~17,542~~

~~(1) Of this amount $1.7~~agreement. At March 30, 2022, our remaining obligation under these contracts was approximately $9.2 million, ~~was~~$1.6 million of which is included in accounts payable. At March 30, 2022, we had approximately $8.4 million in inventory and $0.7 million in contract assets related to the ~~deferred franchise revenue balance as of December 30, 2020.~~

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 ~~September~~March 30, 2022 and December 29, 2021 ~~and December 30, 2020~~ was ~~$5.2~~$5.8 million and ~~$6.1~~$7.2 million, respectively. During the ~~three quarters~~quarter ended ~~September 29, 2021,~~March 30, 2022, we recognized revenue of ~~$0.3~~$0.2 million from gift card redemptions at company restaurants.

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

Operating (gains), losses and other charges, net consisted of the following:


		Quarter Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands)										(In thousands)
Gains on sales of assets and other, net	Gains on sales of assets and other, net	$	(93)	$	(1,202)	$	(1,100)	$	(2,260)	Gains on sales of assets and other, net		$	(146)	$	(942)
Restructuring charges and exit costs	Restructuring charges and exit costs	(122)		83		1,304		2,060		Restructuring charges and exit costs		146		1,474
Impairment charges		—		338		—		2,519

Operating (gains), losses and other charges, net	Operating (gains), losses and other charges, net	$	(215)	$	(781)	$	204	$	2,319	Operating (gains), losses and other charges, net		$	—	$	532

During the three quarters ended September 29, 2021, gains on sales of assets and other, net were primarily related to the sale of 1 parcel of real estate. During the quarter and three quarters ended September 23, 2020, gains on sales of assets and other, net were primarily related to the sale of 3 and 5 real estate parcels, respectively.

As of ~~September 29, 2021, we had recorded assets held for sale consisting of property at their carrying amount of $1.6 million related to 2 parcels of real estate. As of December~~March 30, ~~2020,~~2022, we had recorded assets held for sale at their carrying amount of ~~$1.1~~$1.3 million (consisting of property of $1.0 million and other assets of ~~$0.1~~$0.3 million) related to 23 parcels of real estate. There were no assets held for sale recorded as of December 29, 2021.

Restructuring charges and exit costs consisted of the following:


		Quarter Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands)										(In thousands)
Exit costs	Exit costs	$	101	$	75	$	324	$	169	Exit costs		$	12	$	82
Severance and other restructuring charges	Severance and other restructuring charges	(223)		8		980		1,891		Severance and other restructuring charges		134		1,392
Total restructuring charges and exit costs	Total restructuring charges and exit costs	$	(122)	$	83	$	1,304	$	2,060	Total restructuring charges and exit costs		$	146	$	1,474

Exit costs primarily consist of costs related to closed restaurants. ~~Exit cost liabilities were $0.1 million as of both September 29, 2021 and December 30, 2020.~~ Exit cost liabilities related to lease costs are included as a component of operating lease liabilities in our ~~Condensed~~ Consolidated Balance Sheets.

As of ~~September~~March 30, 2022 and December 29, 2021, ~~and December 30, 2020,~~ we had accrued severance and other restructuring charges of ~~$0.3~~$0.1 million and ~~$0.6~~$0.1 million, respectively. The balance as of ~~September 29, 2021~~March 30, 2022 is expected to be paid 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 Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands)										(In thousands)
Employee share awards	Employee share awards	$	3,127	$	1,784	$	9,544	$	1,364	Employee share awards		$	3,794	$	3,253
Restricted stock units for board members	Restricted stock units for board members	225		214		668		608		Restricted stock units for board members		221		219
Total share-based compensation	Total share-based compensation	$	3,352	$	1,998	$	10,212	$	1,972	Total share-based compensation		$	4,015	$	3,472

Employee Share Awards

During the ~~three quarters~~quarter ended ~~September 29, 2021,~~March 30, 2022, we granted certain employees approximately ~~0.5 million~~233,000 performance share units ("PSUs") with a grant date fair value of ~~$24.74~~$24.51 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 ~~(from 0% to 200%~~and approximately 233,000 PSUs with a grant date fair value of $15.59 per share that vest based on our Adjusted EPS growth rate versus plan, as defined under the terms of the ~~target award).~~award. As the TSR based ~~performance shares~~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 ~~31, 2020~~30, 2021 and ending December ~~27, 2023.~~25, 2024. 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 ~~determined.~~applied to the vested units (from 0% to 200% of the target award). We recognize compensation cost associated with approximately 312,000 of these PSU awards over the entire performance period on a straight-line basis, with compensation cost for the remaining 154,000 PSU awards recognized on a graded-vesting basis due to the accelerated vesting terms for certain retirement eligible individuals.

We also granted certain employees approximately ~~0.2 million~~310,000 restricted stock units ("RSUs") with a grant date fair value of ~~$15.91~~$15.59 per share. The RSUs vest evenly over the three year fiscal period beginning December 30, 2021 and ending December ~~27, 2023.~~25, 2024. We recognize compensation cost associated with these RSU awards on a straight-line basis over the entire performance period of the award.

During the ~~three quarters~~quarter ended ~~September 29, 2021,~~March 30, 2022, we issued ~~0.2 million~~257,000 shares of common stock related to vested ~~performance share units.~~PSUs and RSUs. In addition, ~~0.1 million~~approximately 24,000 shares of common stock were deferred and approximately 136,000 shares of common stock were withheld in lieu of taxes related to vested ~~performance share units.~~PSUs and RSUs.

~~We recognize compensation cost associated with our PSU and RSU awards on a straight-line basis over the entire performance period of the awards.~~ As of ~~September 29, 2021,~~March 30, 2022, we had approximately ~~$15.9~~$22.9 million of unrecognized compensation cost related to unvested ~~performance share~~PSU awards and ~~restricted share~~RSU awards outstanding, which have a weighted average remaining contractual term of ~~1.9~~2.3 years.

Restricted Stock Units for Board Members

During the three quarters ended September 29, 2021, we granted approximately 0.1 million restricted stock units (which are equity classified) with a weighted average grant date fair value of $17.33 per unit to non-employee members of our Board of Directors. The restricted stock units 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 3 equal annual installments commencing after termination of service as a member of our Board.

~~During the three quarters ended September 29, 2021, less than 0.1 million restricted stock units were converted into shares of common stock.~~

As of ~~September 29, 2021,~~March 30, 2022, we had approximately ~~$0.6~~$0.1 million of unrecognized compensation cost related to unvested ~~restricted stock unit~~RSU awards outstanding, which have a weighted average remaining contractual term of ~~0.6~~0.2 years.

Note 11. Income Taxes

The effective income tax rate was ~~25.0%~~27.1% for the quarter ~~and 24.1% for the three quarters~~ ended ~~September 29, 2021,~~March 30, 2022, compared to ~~11.2% and 20.6%~~25.9% for the prior year ~~periods, respectively. The 2020 year-to-date rate included a net benefit of 22.2% from the reclassification of cash flow derivatives from accumulated other comprehensive loss.~~period.

1514

Note 12. Net Income ~~(Loss)~~ Per Share

The amounts used for the basic and diluted net income ~~(loss)~~ per share calculations are summarized below:

Quarter Ended Three Quarters Ended
September 29, 2021 September 23, 2020 September 29, 2021 September 23, 2020
(In thousands, except per share amounts)
Net income (loss) $ 12,265 $ 6,477 $ 34,618 $ (7,475)
Weighted average shares outstanding - basic 65,447 63,793 65,413 59,350
Effect of dilutive share-based compensation awards(1)
382 234 401 —
Weighted average shares outstanding - diluted 65,829 64,027 65,814 59,350
Basic net income (loss) per share $ 0.19 $ 0.10 $ 0.53 $ (0.13)
Diluted net income (loss) per share $ 0.19 $ 0.10 $ 0.53 $ (0.13)
Anti-dilutive share-based compensation awards 365 568 445 1,975

~~(1) For the three quarters ended September 23, 2020, share-based compensation awards have been omitted from the calculations because they have an anti-dilutive effect.~~


	Quarter Ended
		March 30, 2022		March 31, 2021
		(In thousands, except per share amounts)
Net income		$	21,855	$	23,181

Weighted average shares outstanding - basic		63,343		65,251
Effect of dilutive share-based compensation awards		237		498
Weighted average shares outstanding - diluted		63,580		65,749

Net income per share - basic		$	0.35	$	0.36
Net income per share - diluted		$	0.34	$	0.35

Anti-dilutive share-based compensation awards		829		273

Note 13. Shareholders' Deficit

Share Repurchases

Our ~~New Credit Facility~~credit facility permits the repurchase of Denny’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 quarter ended March 25, 2020, we suspended share repurchases as of February 27, 2020 and terminated our previously approved Rule 10b5-1 Repurchase Plan effective March 16, 2020 in light of uncertain market conditions arising from the COVID-19 pandemic. Prior to the refinancing of our New Credit Facility in the third quarter of 2021, share repurchase restrictions were in place under our Old Credit Facility. As a result of refinancing of our credit facility in the third quarter of 2021,~~we resumed our share repurchase program.~~

~~During the quarter ended September 29, 2021,~~30, 2022, we repurchased a total of ~~0.4~~0.8 million shares of our common stock for approximately ~~$6.6~~$11.9 million. This brings the total amount repurchased under the current authorization to approximately ~~$8.6~~$44.5 million, leaving approximately ~~$241.4~~$205.5 million that can be used to repurchase our common stock under this authorization as of ~~September 29, 2021.~~March 30, 2022. Repurchased shares are included as treasury stock in our ~~Condensed~~ Consolidated Balance Sheets and our ~~Condensed~~ Consolidated Statement of Shareholders' Deficit.

~~In the fourth quarter of fiscal 2020, the Board approved the retirement of 54.0 million shares of treasury stock at a weighted average share price of $10.26.~~ As of ~~September 29, 2021, 0.4~~March 30, 2022, 2.7 million shares were held in treasury stock.

1615

~~Issuance and Sale of Common Stock~~

During the quarter ended September 23, 2020, the Company entered into an underwriting agreement with Wells Fargo Securities, LLC, as representative of the several underwriters named therein, for the issuance and sale by the Company of 8,000,000 shares of its common stock, par value $0.01 per share, in an underwritten public offering at a price to the public of $9.15 per share. On July 6, 2020, the Company received net proceeds of $69.6 million from the sale of shares, after deducting the underwriters' discounts and commissions and offering expenses.

Accumulated Other Comprehensive Loss, Net

The components of the change in accumulated other comprehensive loss, net were as follows:


		Defined Benefit Plans		Derivatives		Accumulated Other Comprehensive Loss, Net			Defined Benefit Plans		Derivatives		Accumulated Other Comprehensive Loss, Net
		(In thousands)							(In thousands)
Balance as of December 30, 2020		$	(978)	$	(59,427)	$	(60,405)
Balance as of December 29, 2021								Balance as of December 29, 2021	$	(900)	$	(53,570)	$	(54,470)

Amortization of net loss (1)	Amortization of net loss (1)	120		—		120		Amortization of net loss (1)	32		—		32

Changes in the fair value of cash flow derivatives	Changes in the fair value of cash flow derivatives	—		2,282		2,282		Changes in the fair value of cash flow derivatives	—		6,688		6,688
Reclassification of cash flow derivatives to interest expense, net (2)	Reclassification of cash flow derivatives to interest expense, net (2)	—		3,010		3,010		Reclassification of cash flow derivatives to interest expense, net (2)	—		990		990

Amortization of unrealized losses related to dedesignated derivatives to interest expense, net (3)		—		166		166

Income tax expense related to items of other comprehensive income	Income tax expense related to items of other comprehensive income	(31)		(1,398)		(1,429)		Income tax expense related to items of other comprehensive income	(8)		(1,921)		(1,929)
Balance as of September 29, 2021		$	(889)	$	(55,367)	$	(56,256)
Balance as of March 30, 2022								Balance as of March 30, 2022	$	(876)	$	(47,813)	$	(48,689)

(1) ~~Amount~~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 ~~Condensed~~ Consolidated Statements of Operations during the ~~three quarters~~quarter ended ~~September 29, 2021.~~March 30, 2022.

(2) Amounts reclassified from accumulated other comprehensive loss, net into interest expense, net in our ~~Condensed~~ Consolidated Statements of Operations represent payments either received from or made to the counterparty for the interest rate swaps. See Note 7 for additional details.

(3) The losses related to the 2018 Swaps will continue to be included in accumulated other comprehensive loss, net and will be amortized as a component of interest expense, net in our Consolidated Statements of Operations over the remaining term of the 2018 Swaps. For the three quarters ended September 29, 2021, we amortized approximately $0.2 million of losses to interest expense, net related to the 2018 Swaps. We expect to amortize less than $0.1 million from accumulated other comprehensive loss related to our interest rate swaps during the next 12 months. See Note 7 for additional details.

Note 14. Commitments and Contingencies

~~Purchase Obligations~~

During the quarter ended September 29, 2021, the Company entered into equipment purchase contracts of approximately $18.1 million related to the rollout of kitchen equipment for franchise restaurants, which will be paid by the franchisees as the equipment is installed, less approximately $5.7 million in commitments from the Company.

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


		Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020			March 30, 2022		March 31, 2021
		(In thousands)					(In thousands)
Income taxes paid, net	Income taxes paid, net	$	5,638	$	545	Income taxes paid, net	$	449	$	421
Interest paid	Interest paid	$	11,189	$	11,851	Interest paid	$	2,849	$	4,743

Noncash investing and financing activities:	Noncash investing and financing activities:					Noncash investing and financing activities:

Issuance of common stock, pursuant to share-based compensation plans	Issuance of common stock, pursuant to share-based compensation plans	$	3,087	$	6,042	Issuance of common stock, pursuant to share-based compensation plans	$	4,081	$	2,435

Execution of finance leases	Execution of finance leases	$	992	$	95	Execution of finance leases	$	133	$	—
Treasury stock payable		$	335	$	—

Accrued deferred financing costs		$	36	$	—

Note 16. Subsequent Event

On May 3, 2022, the Company entered into an Asset Purchase Agreement, by and between the Company, as purchaser, and K2 Restaurants, Inc. together with the other sellers and principals party thereto (the "Purchase Agreement") for the acquisition of certain assets and assumption of certain liabilities of the franchise business, Keke's Breakfast Cafe ("Keke's"), and 8 Keke’s restaurants owned and operated by the sellers (the "Acquisition"). The Company anticipates that the Acquisition will close during the Company’s second fiscal quarter of 2022.

The aggregate consideration payable to Keke's equityholders will be $82,500,000, payable in cash, subject to certain adjustments. The Company expects to fund the purchase price with a combination of cash on hand and funds available under its existing credit agreement.

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 and Section 21E of the Securities Exchange Act of 1934, as amended. 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: the ~~rapidly~~ evolving COVID-19 pandemic and related containment measures, including the potential for further operational disruption from government mandates affecting restaurants; economic, public health and political conditions that impact consumer confidence and spending, including COVID-19; 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 successfully complete the acquisition and subsequent integration of Keke's Breakfast Cafe; 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 year ended December ~~30, 2020, the Company's Quarterly Reports~~29, 2021, this report on Form 10-Q ~~for~~and in the ~~quarters ended March 31, 2021 and June 30, 2021 and this report~~Company's subsequent quarterly reports on Form 10-Q.

~~Current Trends~~

~~Domestic system-wide same-store sales~~1 ~~for the quarter ended September 29, 2021 decreased 0.1% compared to the equivalent fiscal period in 2019 and increased 50.2% compared to the equivalent fiscal period in 2020.~~

Total off-premise sales at domestic and franchised restaurants, inclusive of virtual brands, have remained strong at approximately 23% of average weekly sales during the third quarter of 2021 compared to a pre-pandemic level in February 2020 of approximately 12%.

Over 40% of domestic company and franchised restaurants were operating 24/7 at the end of the third quarter with staffing challenges being the primary headwind preventing restaurants from extending late night operating hours. To address the industry-wide staffing challenges, the Company has conducted hiring tours and engaged a third-party vendor to enhance its online recruiting allowing franchisees to post open positions on its career website with greater visibility to potential applicants.

~~In an effort to provide greater transparency due to the COVID-19 pandemic, Denny's is providing the following table that presents monthly same-store sales~~1 ~~results compared to the equivalent fiscal periods during 2019:~~

~~Domestic System-Wide Same-Store Sales~~1 ~~Compared to 2019 Fiscal Periods~~

~~and Domestic Average Units for 2021 Fiscal Periods~~

Domestic System-Wide Same-Store Sales1
System Year-to-Date October 2021*: (6%)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct*
System (31%) (25%) (9%) (2%) (3%) 1% 3% (2%) (1%) 1%
24/7 Units (20%) (16%) 2% 11% 11% 14% 15% 9% 9% 10%
Limited Hour Units (38%) (32%) (16%) (11%) (12%) (8%) (7%) (10%) (10%) (9%)
*October results are preliminary.

Domestic Average Units
Jan Feb Mar Apr May Jun Jul Aug Sep Oct*
System 1,504 1,501 1,501 1,499 1,498 1,497 1,495 1,493 1,495 1,494
24/7 Units 519 532 569 566 561 566 576 590 626 665
Limited Hour Units 939 928 912 920 926 920 909 894 861 822
*October results are preliminary.

~~______________~~

~~(1)~~ Domestic system-wide same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open during the comparable periods noted. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic system-wide same-store sales should be considered as a supplement to, not a substitute for, the Company's results as reported under GAAP.

2017

Statements of Operations

The following table contains information derived from our ~~Condensed~~ Consolidated Statements of Operations expressed as a percentage of total operating revenue, except as noted below. Percentages may not add due to rounding.


		Quarter Ended										Three Quarters Ended											Quarter Ended
		September 29, 2021					September 23, 2020					September 29, 2021					September 23, 2020							March 30, 2022	March 31, 2021
		(Dollars in thousands)																							(Dollars in thousands)
Revenue:	Revenue:																					Revenue:
Company restaurant sales	Company restaurant sales	$	46,470		44.8	%	$	27,849		38.9	%	$	127,611		43.9	%	$	85,268		40.9	%	Company restaurant sales			$	43,976		42.7	%	$	33,569		41.7	%
Franchise and license revenue	Franchise and license revenue	57,324			55.2	%	43,795			61.1	%	162,924			56.1	%	123,232			59.1	%	Franchise and license revenue			59,131			57.3	%	47,007			58.3	%
Total operating revenue	Total operating revenue	103,794			100.0	%	71,644			100.0	%	290,535			100.0	%	208,500			100.0	%	Total operating revenue			103,107			100.0	%	80,576			100.0	%
Costs of company restaurant sales, excluding depreciation and amortization (a):	Costs of company restaurant sales, excluding depreciation and amortization (a):																					Costs of company restaurant sales, excluding depreciation and amortization (a):
Product costs	Product costs	11,430			24.6	%	7,106			25.5	%	31,149			24.4	%	21,541			25.3	%	Product costs			11,244			25.6	%	8,272			24.6	%
Payroll and benefits	Payroll and benefits	17,404			37.5	%	11,925			42.8	%	47,339			37.1	%	37,070			43.5	%	Payroll and benefits			17,086			38.9	%	12,965			38.6	%
Occupancy	Occupancy	3,013			6.5	%	2,638			9.5	%	8,707			6.8	%	8,529			10.0	%	Occupancy			3,240			7.4	%	2,850			8.5	%
Other operating expenses	Other operating expenses	6,722			14.5	%	5,701			20.5	%	19,351			15.2	%	15,954			18.7	%	Other operating expenses			7,055			16.0	%	6,077			18.1	%
Total costs of company restaurant sales	Total costs of company restaurant sales	38,569			83.0	%	27,370			98.3	%	106,546			83.5	%	83,094			97.5	%	Total costs of company restaurant sales			38,625			87.8	%	30,164			89.9	%
Costs of franchise and license revenue, excluding depreciation and amortization (a)	Costs of franchise and license revenue, excluding depreciation and amortization (a)	27,469			47.9	%	24,073			55.0	%	79,962			49.1	%	68,487			55.6	%	Costs of franchise and license revenue, excluding depreciation and amortization (a)			30,669			51.9	%	23,758			50.5	%
General and administrative expenses	General and administrative expenses	16,497			15.9	%	13,694			19.1	%	50,992			17.6	%	34,589			16.6	%	General and administrative expenses			16,958			16.4	%	16,947			21.0	%
Depreciation and amortization	Depreciation and amortization	3,822			3.7	%	4,048			5.7	%	11,380			3.9	%	12,252			5.9	%	Depreciation and amortization			3,548			3.4	%	3,661			4.5	%
Operating (gains), losses and other charges, net	Operating (gains), losses and other charges, net	(215)			(0.2)	%	(781)			(1.1)	%	204			0.1	%	2,319			1.1	%	Operating (gains), losses and other charges, net			—			—	%	532			0.7	%
Total operating costs and expenses, net	Total operating costs and expenses, net	86,142			83.0	%	68,404			95.5	%	249,084			85.7	%	200,741			96.3	%	Total operating costs and expenses, net			89,800			87.1	%	75,062			93.2	%
Operating income	Operating income	17,652			17.0	%	3,240			4.5	%	41,451			14.3	%	7,759			3.7	%	Operating income			13,307			12.9	%	5,514			6.8	%
Interest expense, net	Interest expense, net	3,671			3.5	%	4,422			6.2	%	12,014			4.1	%	13,320			6.4	%	Interest expense, net			2,960			2.9	%	4,277			5.3	%
Other nonoperating expense (income), net		(2,368)			(2.3)	%	(8,477)			(11.8)	%	(16,165)			(5.6)	%	3,851			1.8	%
Income (loss) before income taxes		16,349			15.8	%	7,295			10.2	%	45,602			15.7	%	(9,412)			(4.5)	%
Provision for (benefit from) income taxes		4,084			3.9	%	818			1.1	%	10,984			3.8	%	(1,937)			(0.9)	%
Net income (loss)		$	12,265		11.8	%	$	6,477		9.0	%	$	34,618		11.9	%	$	(7,475)		(3.6)	%
Other nonoperating income, net																						Other nonoperating income, net			(19,615)			(19.0)	%	(30,048)			(37.3)	%
Income before income taxes																						Income before income taxes			29,962			29.1	%	31,285			38.8	%
Provision for income taxes																						Provision for income taxes			8,107			7.9	%	8,104			10.1	%
Net income																						Net income			$	21,855		21.2	%	$	23,181		28.8	%

Other Data:	Other Data:																					Other Data:
Company average unit sales	Company average unit sales	$	717				$	423				$	1,974				$	1,313				Company average unit sales			$	682				$	523
Franchise average unit sales	Franchise average unit sales	$	424				$	282				$	1,166				$	868				Franchise average unit sales			$	404				$	326
Company equivalent units (b)	Company equivalent units (b)	65					66					65					65					Company equivalent units (b)			64					64
Franchise equivalent units (b)	Franchise equivalent units (b)	1,578					1,608					1,581					1,620					Franchise equivalent units (b)			1,572					1,583
Company same-store sales increase (decrease) vs. prior year ~~(e)~~(d)	Company same-store sales increase (decrease) vs. prior year ~~(e)~~(d)	67.7		%			(40.2)		%			54.1		%			(37.4)		%			Company same-store sales increase (decrease) vs. prior year ~~(e)~~(d)			30.6		%			(9.4)		%
Domestic franchise same-store sales increase (decrease) vs. prior year ~~(e)~~(d)	Domestic franchise same-store sales increase (decrease) vs. prior year ~~(e)~~(d)	48.9		%			(33.1)		%			37.2		%			(30.1)		%			Domestic franchise same-store sales increase (decrease) vs. prior year ~~(e)~~(d)			22.8		%			(9.7)		%
Company same-store sales increase (decrease) vs. 2019 (c)(d)(e)		1.9		%			N/A					(6.4)		%			N/A
Domestic franchise same-store sales decrease vs. 2019 (c)(d)(e)		(0.3)		%			N/A					(6.7)		%			N/A

(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.

(b)Equivalent units are calculated as the weighted average number of units outstanding during a defined time period.

(c)Same-store sales include sales from company restaurants or non-consolidated franchised and licensed restaurants that were open during the comparable periods noted.

(d)In an effort to provide greater transparency due to the COVID-19 pandemic, we are providing additional same-store sales information for 2021 that includes sales from company restaurants or non-consolidated franchised and licensed restaurants that were open the same period in fiscal 2019.

~~(e)~~Prior year amounts have not been restated for ~~2021~~2022 comparable units.

2218

Unit Activity


		Quarter Ended		Three Quarters Ended			Quarter Ended
		September 29, 2021	September 23, 2020	September 29, 2021	September 23, 2020			March 30, 2022	March 31, 2021
Company restaurants, beginning of period	Company restaurants, beginning of period	65	67	65	68	Company restaurants, beginning of period		65	65
Units opened	Units opened	—	—	—	—	Units opened		—	—

Units closed	Units closed	—	(1)	—	(2)	Units closed		—	—
End of period	End of period	65	66	65	66	End of period		65	65

Franchised and licensed restaurants, beginning of period	Franchised and licensed restaurants, beginning of period	1,580	1,616	1,585	1,635	Franchised and licensed restaurants, beginning of period		1,575	1,585
Units opened	Units opened	7	5	13	16	Units opened		5	3

Units closed	Units closed	(5)	(23)	(16)	(53)	Units closed		(11)	(4)
End of period	End of period	1,582	1,598	1,582	1,598	End of period		1,569	1,584
Total restaurants, end of period	Total restaurants, end of period	1,647	1,664	1,647	1,664	Total restaurants, end of period		1,634	1,649

Company Restaurant Operations

Company restaurant sales increased ~~$18.6~~$10.4 million, or ~~66.9%~~31.0%, for the quarter ended ~~September 29, 2021 and $42.3 million, or 49.7%, year-to-date~~March 30, 2022 as compared to the prior year ~~periods, respectively.~~period. The ~~increases~~increase in ~~company restaurant~~ sales ~~were~~was primarily due to ~~reduced~~easing of prior year period dine-in restrictions and ~~fewer temporary closures~~limited operating hours related to the COVID-19 pandemic in addition to current quarter increases in guest check average. Company same-store sales increased 30.6% for the current ~~periods~~year quarter as compared to the prior year ~~periods. Company same-store sales increased 67.7% for the current year quarter and 54.1% year-to-date as compared to the prior year periods.~~period.

Total costs of company restaurant sales as a percentage of company restaurant sales ~~was 83.0%~~were 87.8% for the quarter ended ~~September 29, 2021 and 83.5% year-to-date~~March 30, 2022 compared to ~~98.3% and 97.5%~~89.9%, ~~respectively,~~ for the prior year ~~periods.~~period.

Product costs were ~~24.6%~~25.6% of company restaurant sales for the quarter ~~ended September 29, 2021 and 24.4% year-to-date~~ compared to ~~25.5% and 25.3%, respectively,~~24.6% for the prior year ~~periods. The decreases as a percentage of sales were~~period, primarily due to ~~leverage gained from favorable product mix and increased pricing, partly offset by~~ increased commodity costs. ~~The prior year also included increases in paper product costs due to higher delivery and to-go orders as a percentage of sales related to the COVID-19 pandemic.~~

Payroll and benefits were ~~37.5%~~38.9% of company restaurant sales for the quarter ~~ended September 29, 2021 and 37.1% year-to-date~~ compared to ~~42.8% and 43.5%, respectively,~~38.6% in the prior year ~~periods.~~period. For the current ~~year~~ quarter, ~~and year-to-date periods, management and~~ staff payroll ~~including payroll taxes, decreased 5.6~~increased 2.0 percentage points ~~and 6.3 percentage points, respectively,~~ as a percentage of ~~sales. The primary driver of these decreases was~~sales primarily due to labor inflation, partially offset by a 1.8 percentage point decrease in management payroll due to the leveraging effect of higher sales. ~~Also contributing to the decreases were lower relative staffing levels in~~Additionally, the current year due to challenges in the labor market as compared to the prior year. Additionally, during the prior year, we retained a significant portion of our management staff during a time that restaurants were closed or operating under government restrictions. For the current year quarter included a 0.8 percentage point increase in workers' compensation costs, ~~resulting from positive claims development in the prior year, was~~ partially offset by ~~the leveraging~~a 0.7 percentage point decrease in group benefit ~~of higher sales. For the year-to-date period, unit level incentive compensation costs increased 0.5 percentage points as a result of the improvement in operating performance.~~costs.

Occupancy costs were ~~6.5%~~7.4% of company restaurant sales for the quarter ~~ended September 29, 2021 and 6.8% year-to-date~~ compared to ~~9.5% and 10.0%, respectively,~~8.5% in the prior year ~~periods.~~period. The ~~decreases~~decrease as a percentage of sales ~~were~~was primarily due to the leveraging effect of higher sales, partially offset by higher percentage rents due to the increase in sales.

Other operating expenses consist of the following amounts and percentages of company restaurant sales:


		Quarter Ended								Three Quarters Ended									Quarter Ended
		September 29, 2021				September 23, 2020				September 29, 2021				September 23, 2020						March 30, 2022	March 31, 2021
		(Dollars in thousands)																			(Dollars in thousands)
Utilities	Utilities	$	1,660	3.6	%	$	1,281	4.6	%	$	4,275	3.4	%	$	3,815	4.5	%	Utilities			$	1,577	3.6	%	$	1,225	3.6	%
Repairs and maintenance	Repairs and maintenance	722		1.6	%	711		2.6	%	1,890		1.5	%	1,928		2.3	%	Repairs and maintenance			825		1.9	%	533		1.6	%
Marketing	Marketing	1,239		2.7	%	1,045		3.8	%	3,571		2.8	%	2,771		3.2	%	Marketing			1,207		2.7	%	967		2.9	%

Other direct costs	Other direct costs	3,101		6.7	%	2,664		9.6	%	9,615		7.5	%	7,440		8.7	%	Other direct costs			3,446		7.8	%	3,352		10.0	%
Other operating expenses	Other operating expenses	$	6,722	14.5	%	$	5,701	20.5	%	$	19,351	15.2	%	$	15,954	18.7	%	Other operating expenses			$	7,055	16.0	%	$	6,077	18.1	%

Other direct costs were lower as a percentage of sales due to the leveraging effect of higher ~~sales.~~sales and a 1.7 percentage point reduction in legal settlement costs.

Franchise Operations

Franchise and license revenue and costs of franchise and license revenue consisted of the following amounts and percentages of franchise and license revenue for the periods indicated:


		Quarter Ended								Three Quarters Ended									Quarter Ended
		September 29, 2021				September 23, 2020				September 29, 2021				September 23, 2020						March 30, 2022	March 31, 2021
		(Dollars in thousands)																			(Dollars in thousands)
Royalties	Royalties	$	27,336	47.7	%	$	17,896	40.9	%	$	75,297	46.2	%	$	48,462	39.3	%	Royalties			$	26,525	44.9	%	$	20,844	44.4	%
Advertising revenue	Advertising revenue	18,215		31.8	%	13,927		31.8	%	50,926		31.3	%	38,685		31.4	%	Advertising revenue			18,206		30.8	%	14,111		30.0	%
Initial and other fees	Initial and other fees	1,442		2.5	%	1,890		4.3	%	5,346		3.3	%	4,933		4.0	%	Initial and other fees			4,507		7.6	%	1,838		3.9	%
Occupancy revenue	Occupancy revenue	10,331		18.0	%	10,082		23.0	%	31,355		19.2	%	31,152		25.3	%	Occupancy revenue			9,893		16.7	%	10,214		21.7	%
Franchise and license revenue	Franchise and license revenue	$	57,324	100.0	%	$	43,795	100.0	%	$	162,924	100.0	%	$	123,232	100.0	%	Franchise and license revenue			$	59,131	100.0	%	$	47,007	100.0	%

Advertising costs	Advertising costs	$	18,216	31.8	%	$	13,927	31.8	%	$	50,927	31.3	%	$	38,685	31.4	%	Advertising costs			$	18,206	30.8	%	$	14,111	30.0	%
Occupancy costs	Occupancy costs	6,445		11.2	%	6,858		15.7	%	19,863		12.2	%	20,096		16.3	%	Occupancy costs			6,377		10.8	%	6,539		13.9	%
Other direct costs	Other direct costs	2,808		4.9	%	3,288		7.5	%	9,172		5.6	%	9,706		7.9	%	Other direct costs			6,086		10.3	%	3,108		6.6	%
Costs of franchise and license revenue	Costs of franchise and license revenue	$	27,469	47.9	%	$	24,073	55.0	%	$	79,962	49.1	%	$	68,487	55.6	%	Costs of franchise and license revenue			$	30,669	51.9	%	$	23,758	50.5	%

Franchise and license revenue increased ~~$13.5~~$12.1 million, or ~~30.9%~~25.8%, for the quarter ~~ended September 29, 2021 and $39.7 million, or 32.2%, year-to-date~~ compared to the prior year ~~periods, respectively~~period. Royalties increased ~~$9.4~~$5.7 million, or ~~52.8%, and $26.8 million, or 55.4%~~27.3%, for the current quarter ~~and year-to-date periods, respectively,~~ compared to the prior year ~~periods.~~period. Advertising revenue increased ~~$4.3~~$4.1 million, or ~~30.8%~~29.0%, for the current quarter ~~and $12.2 million, or 31.6%, year-to-date~~ compared to the prior year ~~periods, respectively.~~period. The increases in royalty and advertising revenue primarily resulted from ~~48.9% and 37.2% increases~~a 22.8% increase in domestic same-store ~~sales for the respective periods. Additionally, the prior year periods included abatements~~sales. These increases were partially offset by a decrease of $0.2 million and $5.0 million of royalties in the quarter-to-date and year-to-date periods, respectively, and $1.3 million in abatements of advertising fees in the year-to-date period to help our franchisees weather the impact of the COVID-19 pandemic. Partially offsetting these increases for both periods were decreases of 30 and 3911 equivalent units for the ~~quarterly and year-to-date periods, respectively, which were primarily driven by closures in the prior year.~~quarter.

Initial and other fees ~~decreased $0.5~~increased $2.7 million, or ~~23.8%~~145.2%, for the quarter ~~ended September 29, 2021 and increased $0.4 million, or 8.4%, year-to-date~~ compared to the prior year ~~periods, respectively.~~period. The ~~quarter-to-date decrease was~~increase in initial and other fees primarily ~~due~~resulted from the recognition of $2.2 million of revenue from the sale and installation of kitchen equipment purchased by franchisees. The revenue recorded related to ~~a reduction~~the sale of equipment has an equal and offsetting expense recorded in ~~front end fees.~~other direct costs as described below. Occupancy revenue decreased $0.3 million, or 3.1%, for the current quarter compared to the prior year period.

Costs of franchise and license revenue increased $6.9 million, or 29.1%, for the quarter compared to the prior year period. The ~~year-to-date~~ increase was primarily ~~due~~related to ~~menu production~~the increase in advertising costs, which corresponded to the related advertising revenue ~~partially offset by reduced front end fees.~~increase noted above. Occupancy ~~revenue increased~~costs decreased $0.2 million, or 2.5%, for the current quarter ~~and $0.2 million, or 0.7%, year-to-date~~ compared to the prior year periods, respectively. The increase in occupancy revenue primarily resulted from higher percentage rents as a result of sales increases due to reduced dine-in restrictions and temporary closures related to the COVID-19 pandemic, partially offset by reductions in rent income due to lease terminations.

Costs of franchise and license revenue increased $3.4 million, or 14.1%, for the quarter ended September 29, 2021 and $11.5 million, or 16.8%, year-to-date compared to the prior year periods, respectively. The increases were primarily related to the

increases in advertising costs year-over-year, which corresponded to the related advertising revenue increases noted above. Occupancy costs decreased $0.4 million, or 6.0%, for the current quarter and $0.2 million, or 1.2%, year-to-date compared to prior year periods, respectively.period. The decreases in occupancy costs for the current quarter primarily resulted from lease ~~terminations.~~terminations, partially offset by increased percentage rent from higher sales. Other direct franchise costs ~~decreased $0.5~~increased $3.0 million, or ~~14.6%~~95.7%, for the current quarter ~~and $0.5 million, or 5.5%, year-to-date~~ compared to the prior year ~~periods, respectively.~~period. The ~~decreases~~increase in other direct franchise costs ~~were~~was primarily due to ~~reductions in bad debt allowance expenses of $0.6 million and~~ $2.2 million ~~for~~in expense recorded as part of the ~~quarter~~rollout of kitchen equipment to franchisees as mentioned above and ~~year-to-date periods, respectively, partially offset by increases of $0.8~~a $0.5 million ~~in menu production expense and $0.8 million~~increase in franchise administrative costs in the ~~year-to-date~~current period. ~~Due to the increase in revenue,~~As a result, costs of franchise and license revenue ~~decreased~~increased to ~~47.9% and 49.1%~~51.9% for the quarter ~~and three quarters~~ ended ~~September 29, 2021, respectively,~~March 30, 2022 from ~~55.0% and 55.6%~~50.5% for the ~~respective~~ prior year ~~periods~~period.

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 Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands)										(In thousands)
Corporate administrative expenses	Corporate administrative expenses	$	11,157	$	9,820	$	32,374	$	31,302	Corporate administrative expenses		$	11,383	$	10,872
Share-based compensation	Share-based compensation	3,352		1,998		10,212		1,972		Share-based compensation		4,015		3,472
Incentive compensation	Incentive compensation	1,893		1,290		7,011		1,305		Incentive compensation		2,119		2,086
Deferred compensation valuation adjustments	Deferred compensation valuation adjustments	95		586		1,395		10		Deferred compensation valuation adjustments		(559)		517
Total general and administrative expenses	Total general and administrative expenses	$	16,497	$	13,694	$	50,992	$	34,589	Total general and administrative expenses		$	16,958	$	16,947

Corporate administrative expenses increased ~~$1.3~~$0.5 million for the quarter ended ~~September 29, 2021 and $1.1 million year-to-date.~~March 30, 2022 compared to the prior year period. The increase for the ~~current~~ quarter was primarily due to ~~prior year~~ temporary cost reductions in the prior year related to the COVID-19 ~~pandemic and retention credits of $0.8~~pandemic. Share-based compensation increased $0.5 million infor the quarter compared to the prior year quarter. Share-based compensation increased $1.4 million for the current quarter and $8.2 million year-to-date. Incentive compensation increased $0.6 million for the current quarter and $5.7 million year-to-date. The increases in share-based compensation and incentive compensation primarily resulted from adjustments recorded in the prior year as a result of not meeting performance measures for the respective compensation plans due to the impacts of the COVID-19 pandemic. Additionally, increases in share-based compensation resulted from plan modifications in the fourth quarter of 2020 impacting 2021 expense, related valuations, and plan design of grants made in 2020 and 2021.period. 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 Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands)										(In thousands)
Depreciation of property and equipment	Depreciation of property and equipment	$	2,758	$	2,834	$	8,411	$	8,525	Depreciation of property and equipment		$	2,647	$	2,715
Amortization of financing lease right-of-use assets	Amortization of financing lease right-of-use assets	556		456		1,412		1,423		Amortization of financing lease right-of-use assets		442		428
Amortization of intangible and other assets	Amortization of intangible and other assets	508		758		1,557		2,304		Amortization of intangible and other assets		459		518
Total depreciation and amortization expense	Total depreciation and amortization expense	$	3,822	$	4,048	$	11,380	$	12,252	Total depreciation and amortization expense		$	3,548	$	3,661

The decreases in depreciation and amortization expense during the quarter ~~ended September 29, 2021 and year-to-date periods~~ were primarily due to certain ~~intangible~~ assets becoming fully amortized in the prior year.

Operating (gains), losses and other charges, net consisted of the following:

Quarter Ended Three Quarters Ended
September 29, 2021 September 23, 2020 September 29, 2021 September 23, 2020
(In thousands)
Gains on sales of assets and other, net $ (93) $ (1,202) $ (1,100) $ (2,260)
Restructuring charges and exit costs (122) 83 1,304 2,060
Impairment charges — 338 — 2,519
Operating (gains), losses and other charges, net $ (215) $ (781) $ 204 $ 2,319

Gains on sales of assets and other, net for the three quarters ended September 29, 2021 were primarily related to the sale of one parcel of real estate. Gains on sales of assets and other, net were primarily related to the sale of three parcels of real estate during the quarter and five parcels of real estate during the three quarters ended September 23, 2020.


	Quarter Ended
		March 30, 2022		March 31, 2021
		(In thousands)
Gains on sales of assets and other, net		$	(146)	$	(942)
Restructuring charges and exit costs		146		1,474

Operating (gains), losses and other charges, net		$	—	$	532

Restructuring charges and exit costs consisted of the following:


		Quarter Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands)										(In thousands)
Exit costs	Exit costs	$	101	$	75	$	324	$	169	Exit costs		$	12	$	82
Severance and other restructuring charges	Severance and other restructuring charges	(223)		8		980		1,891		Severance and other restructuring charges		134		1,392
Total restructuring and exit costs	Total restructuring and exit costs	$	(122)	$	83	$	1,304	$	2,060	Total restructuring and exit costs		$	146	$	1,474

Restructuring and exit costs decreased by ~~$0.2~~$1.3 million for the current quarter ~~and $0.8 million year-to-date~~ compared to the prior year ~~periods, respectively.~~period. The decrease for the current quarter was primarily due to ~~reversals of estimated relocation cost accruals associated with moving certain employees to our support center in the Dallas, Texas area. The decrease for the year-to-date~~prior period ~~was primarily due to the Company permanently separating with approximately 50 support center staff in the prior year period.Restructuring and exit costs for the three quarters ended September 29, 2021 include~~ relocation costs associated with moving certain employees to our support center in the Dallas, Texas area.

Impairment charges of $0.3 million and $2.5 million during the quarter and three quarters ended September 23, 2020, respectively, were the result of an assessment of the recoverability of assets resulting from the impact of the COVID-19 pandemic. The $2.5 million included $1.3 million related to property, $1.1 million related to operating lease ROU assets and less than $0.1 million related to each of finance lease ROU assets and reacquired franchise rights.

Operating income was ~~$17.7~~$13.3 million for the ~~current~~ quarter ~~and $41.5 million year-to-date~~ended March 30, 2022, compared to ~~$3.2~~$5.5 million ~~and $7.8 million, respectively,~~ for the ~~prior year periods.~~quarter ended March 31, 2021.

Interest expense, net consisted of the following:


		Quarter Ended				Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020		September 29, 2021		September 23, 2020				March 30, 2022		March 31, 2021
		(In thousands)										(In thousands)
Interest on credit facility	Interest on credit facility	$	1,286	$	2,251	$	4,541	$	6,790	Interest on credit facility		$	899	$	1,701
Interest on interest rate swaps	Interest on interest rate swaps	1,009		471		3,010		2,097		Interest on interest rate swaps		990		995
Interest on financing lease liabilities	Interest on financing lease liabilities	738		789		2,252		2,348		Interest on financing lease liabilities		607		768
Letters of credit and other fees	Letters of credit and other fees	384		349		1,116		860		Letters of credit and other fees		309		355
Interest income	Interest income	(5)		(11)		(20)		(78)		Interest income		(4)		(8)
Total cash interest, net	Total cash interest, net	3,412		3,849		10,899		12,017		Total cash interest, net		2,801		3,811
Amortization of deferred financing costs	Amortization of deferred financing costs	258		251		946		591		Amortization of deferred financing costs		158		344
Amortization of interest rate swap losses	Amortization of interest rate swap losses	—		283		167		552		Amortization of interest rate swap losses		—		121
Interest accretion on other liabilities	Interest accretion on other liabilities	1		39		2		160		Interest accretion on other liabilities		1		1
Total interest expense, net	Total interest expense, net	$	3,671	$	4,422	$	12,014	$	13,320	Total interest expense, net		$	2,960	$	4,277

Total cash interest expense, net decreased by $0.4 million and $1.1 million for the quarter and three quarters ended September 29, 2021, as compared to the respective prior year periods. Combined interest on credit facility borrowings and interest rate swaps decreased by $0.4 million and $1.3$1.0 million for the current quarter ~~and year-to-date period, respectively. These decreases~~compared to the prior year period. Interest on credit facility borrowings decreased by $0.8 million for the current quarter. This decrease primarily resulted from decreased average borrowings and lower average interest rates in ~~both~~ the current quarter ~~and year-to-date periods,~~ compared to the respective prior year ~~periods.~~period. Interest rates on our borrowings primarily decreased as a result of our credit facility refinancing on August 26, 2021.

Other nonoperating ~~expense (income),~~income, net was income of ~~$2.4~~$19.6 million for the current quarter, ~~and $16.2 million year-to-date,~~ compared to income of ~~$8.5~~$30.0 million ~~and expense of $3.9 million, respectively,~~ for the prior year ~~periods.~~period. Other nonoperating ~~expense (income)~~income, net for the current quarter primarily consisted of ~~$2.3~~$20.3 million of gains related to valuation adjustments for dedesignated interest rate hedges, partly offset by losses of $0.6 million on deferred compensation plan investments. Prior year other nonoperating income, net for the current quarter primarily consisted of $29.9 million of gains related to interest rate swap valuation adjustments. The current year-to-date period primarily consisted of $14.9 million of gains on interest rate swap valuation adjustments in addition to $1.5 million of gains on deferred compensation plan investments. Prior year other nonoperating expense (income) for the quarter primarily consisted of $7.8 million in income related to interest rate swap valuation adjustments in addition to $0.6 million of gains on deferred compensation plan investments. The prior year-to-date period included losses on interest rate swaps of $7.4 million resulting from the discontinuance of hedge accounting treatment on a portion of our interest rate swaps and income of $3.7 million related to interest rate swap valuation adjustments on dedesignated interest rate swaps.

Provision for ~~(benefit from)~~ income taxes was ~~an expense of $4.1~~$8.1 million for both the ~~quarter ended September 29, 2021~~current and ~~an expense of $11.0 million year-to-date, compared to an expense of $0.8 million and a benefit of $1.9 million for the~~ prior year ~~periods, respectively.~~periods. The effective tax rate was ~~25.0%~~27.1% for the current quarter ~~and 24.1% year-to-date,~~ compared to ~~11.2% and 20.6%, respectively,~~25.9% for the prior year ~~periods. The 2020 year-to-date rate included a net benefit of 22.2% from the reclassification of cash flow derivatives from accumulated other comprehensive loss.~~period.

Net income ~~(loss)~~ was ~~net income of $12.3~~$21.9 million for the quarter ended ~~September 29, 2021 and net income of $34.6 million year-to-date~~March 30, 2022, compared to ~~net income of $6.5~~$23.2 million ~~and net loss of $7.5 million, respectively,~~ for the prior year ~~periods.~~period.

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 and the repurchase of shares of our common stock.

The following table presents a summary of our sources and uses of cash and cash equivalents for the periods indicated:


		Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020			March 30, 2022		March 31, 2021
		(In thousands)					(In thousands)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	63,229	$	(11,610)	Net cash provided by (used in) operating activities	$	(7,064)	$	10,235
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(2,912)		1,275		Net cash provided by (used in) investing activities	(3,803)		180
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(54,006)		18,180		Net cash provided by (used in) financing activities	(13,666)		201
Increase in cash and cash equivalents		$	6,311	$	7,845
Increase (decrease) in cash and cash equivalents						Increase (decrease) in cash and cash equivalents	$	(24,533)	$	10,616

Net cash flows used in operating activities were $7.1 million for the quarter ended March 30, 2022 compared to net cash flows provided by operating activities ~~were $63.2~~of $10.2 million for the ~~three quarters~~quarter ended ~~September 29, 2021 compared to net cash flows used in operating activities of $11.6 million for the three quarters ended September 23, 2020.~~March 31, 2021. The ~~increase~~decrease in cash flows provided by (used in) operating activities was primarily due to the ~~improvement of operating results in 2021 and the~~ timing of prior year accrual ~~payments.~~payments, collections of receivables and purchases of inventory for our kitchen equipment project. We believe that our estimated cash flows from operations for ~~2021,~~2022, 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 ~~$2.9~~$3.8 million for the ~~three quarters~~quarter ended ~~September 29, 2021.~~March 30, 2022. These cash flows primarily consisted of capital expenditures of ~~$5.3 million, partially offset by proceeds from sales of real estate and other assets of $1.8 million, collections on notes receivable of $0.5~~$2.8 million and ~~proceeds from sales~~investments purchases of ~~investments of $0.2 million~~$1.2 million.. Net cash flows provided by investing activities were ~~$1.3~~$0.2 million for the ~~three quarters~~quarter ended ~~September 23, 2020.~~March 31, 2021. These cash flows ~~were~~ primarily ~~comprised~~consisted of proceeds from sales of real estate of ~~$4.5~~$1.3 million, ~~and~~ proceeds from ~~the sale~~sales of investments of ~~$2.9~~$0.2 million and collections on notes receivable of $0.2 million, partially offset by capital expenditures of ~~$5.5 million and investment purchases of $1.4~~$1.6 million.

Our principal capital requirements have been largely associated with the following:


		Three Quarters Ended					Quarter Ended
		September 29, 2021		September 23, 2020			March 30, 2022		March 31, 2021
		(In thousands)					(In thousands)
Facilities	Facilities	$	2,262	$	2,808	Facilities	$	913	$	997
New construction		—		114

Remodeling	Remodeling	818		991		Remodeling	1,310		340
Information technology	Information technology	1,276		1,164		Information technology	214		189
Other	Other	965		399		Other	341		57
Capital expenditures	Capital expenditures	$	5,321	$	5,476	Capital expenditures	$	2,778	$	1,583

Net cash flows used in financing activities were ~~$54.0~~$13.7 million for the ~~three quarters~~quarter ended ~~September 29, 2021,~~March 30, 2022, which included ~~net long-term debt repayments of $41.6 million, in addition to~~ cash payments for stock repurchases of ~~$6.2~~$12.5 million ~~net bank overdraft~~and payments of ~~$3.1~~tax withholding on share-based compensation of $2.2 million, ~~and deferred financing costs~~partially offset by net long-term debt borrowings of ~~$1.8~~$1.0 million. Net cash flows provided by financing activities were ~~$18.2~~$0.2 million for the ~~three quarters~~quarter ended ~~September 23, 2020,~~March 31, 2021, which included ~~proceeds~~net long-term debt borrowings of ~~$69.6~~$4.5 million, ~~from the issuance of common stock,~~ partially offset by net ~~long-term debt repayments~~bank overdraft payments of ~~$11.1~~$3.1 million and ~~cash~~ payments ~~for stock repurchases~~ of ~~$36.0~~tax withholdings on share-based compensation of $1.3 million.

Our working capital deficit was ~~$43.5~~$26.9 million at ~~September 29, 2021~~March 30, 2022 compared to ~~$28.5~~$28.3 million at December ~~30, 2020. The increase in working capital deficit was primarily related to the increase in current liabilities as of September~~ 29, 2021. 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.

~~Refinancing of~~ Credit Facility

~~On August 26, 2021, the Company~~Denny's and certain of its subsidiaries ~~refinanced the existing~~have a credit facility ~~(the "Old Credit Facility") and entered into~~consisting of a ~~new~~ five-year $400 million senior secured revolver (with a $25 million letter of credit sublimit) ~~(the "New Credit Facility")~~. The ~~New Credit Facility~~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 and is initially set at LIBOR plus 225 basis points.~~ratio. The maturity date for the ~~New Credit Facility~~credit facility is August 26, 2026.

The ~~New Credit Facility was used to refinance the Old Credit Facility and~~credit facility is ~~also~~ available for working capital, capital expenditures and other general corporate purposes. The ~~New Credit Facility~~credit facility is guaranteed by Denny's and its material subsidiaries and is secured by assets of Denny's 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 ~~New Credit Facility~~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 ~~September 29, 2021.~~March 30, 2022.

As of ~~September 29, 2021,~~March 30, 2022, we had outstanding revolver loans of ~~$170.0~~$171.5 million and outstanding letters of credit under the credit facility of $15.7 million. These balances resulted in ~~availability~~unused commitments of ~~$214.3~~$212.8 million as of ~~September 29, 2021~~March 30, 2022 under the ~~New Credit Facility.~~credit facility.

Kitchen Modernization and Technology Transformation Initiatives

The Company is currently in the process of upgrading and ~~Kitchen Modernization Initiatives~~improving its kitchen equipment throughout the domestic system. The rollout began during the first quarter of 2022 and is expected to be substantially complete by the end of 2022. This investment is expected to yield long-term benefits through menu enhancements across all dayparts but especially the dinner daypart with new and improved food offerings. The new equipment is also expected to provide immediate benefits through increased kitchen efficiency and productivity while also reducing food waste.

The Company has entered into equipment purchase contracts of approximately $18.3 million related to the rollout of kitchen equipment for franchise restaurants, which will be paid by the franchisees as the equipment is installed, less approximately $5.7 million in commitments from the Company. Amounts committed from the Company are contract assets that have been netted against deferred revenue and recognized as a component of franchise and license revenue over the remaining term of the related franchise agreement. At March 30, 2022, our remaining obligation under these contracts was approximately $9.2 million, $1.6 million of which is included in accounts payable. At March 30, 2022, we had approximately $8.4 million in inventory and $0.7 million in contract assets related to the kitchen equipment rollout.

The Company intends to initiate the rollout of a new cloud-based restaurant technology platform throughout the domestic system which will lay the foundation for future technology initiatives to further enhance the guest experience. The rollout is expected to begin during the ~~first~~second half of 2022 and be substantially ~~completed~~complete by the end of 2023.

The Company also intends to upgrade and improve its kitchen equipment throughout the domestic system. The rollout is expected to begin during the first quarter of 2022 and be substantially completed by the end of 2022. This investment is expected to yield long-term benefits through menu enhancements across all dayparts but especially the dinner daypart with new comfort food offerings. The new equipment is also expected to provide immediate benefits through increased kitchen efficiency and productivity while also reducing food waste.

The Company has committed to investing approximately $10 million towards the cost and installation of the ~~point of sale platform and~~ kitchen equipment package (approximately $5.7 million) and the new cloud-based restaurant technology platform (approximately $4.3 million) in domestic franchise restaurants. Additionally, the Company has negotiated favorable financing terms on behalf of its franchisees for the remaining cost.

As of September 29, 2021, the Company has entered into contracts for the purchase of approximately $18.1 million of equipment related to the rollout of kitchen equipment for franchise restaurants, which will be paid by the franchisees as the equipment is installed, less approximately $5.7 million in commitments from the Company. See ~~Contractual Obligations~~ ~~below.~~

Critical Accounting Policies and Estimates

~~Contractual Obligations~~

~~Our future contractual obligations relating to long-term debt~~For information regarding our Critical Accounting Policies and ~~related interest obligations~~Estimates, see the "Critical Accounting Policies and ~~purchase obligations as of September 29, 2021 are as follows:~~

Payments Due by Period
Total Less than 1 Year 1-2 Years 3-4 Years 5 Years and Thereafter
(In thousands)
Long-term debt $ 170,000 $ — $ — $ — $ 170,000
Interest obligations (a) 39,226 1,995 15,956 15,956 5,319
Purchase obligations (b) 18,087 4,177 13,910 — —
Total $ 227,313 $ 6,172 $ 29,866 $ 15,956 $ 175,319

~~(a)~~Interest obligations represent payments related to our long-term debt outstanding at September 29, 2021. For long-term debt with variable rates, we have used the rate applicable at September 29, 2021 to project interest over the periods presentedEstimates" section 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.~~

~~(b)Purchase obligations include amounts payable for kitchen equipment to be installed at franchisee restaurants.~~

~~See Management's~~Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations contained~~Operations" in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2020 for information concerning other future contractual obligations and commitments.~~29, 2021.

Implementation of New Accounting Standards

Information regarding the implementation of new accounting standards is incorporated by reference from Note 2 to our unaudited ~~Condensed~~ 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 ~~September 29, 2021,~~March 30, 2022, borrowings under our credit facility bore interest at variable rates based on LIBOR plus ~~2.25%~~1.75% 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 ~~September 29, 2021~~March 30, 2022 is as follows:

Trade Date Effective Date Maturity Date Notional Amount Fair Value Fixed Rate
(In thousands)
Swaps designated as cash flow hedges
March 20, 2015 March 29, 2018 March 31, 2025 $ 120,000 $ 7,208 2.44 %
October 1, 2015 March 29, 2018 March 31, 2026 $ 50,000 $ 3,429 2.46 %
Dedesignated swaps
February 15, 2018 March 31, 2020 December 31, 2033 $ 100,000 (1) $ 43,237 3.19 %
Total $ 270,000 $ 53,874


Trade Date	Effective Date	Maturity Date	Notional Amount			Fair Value		Fixed Rate
			(In thousands)
Swaps designated as cash flow hedges
March 20, 2015	March 29, 2018	March 31, 2025	$	120,000		$	104	2.44	%
October 1, 2015	March 29, 2018	March 31, 2026	$	50,000		$	(59)	2.46	%
Dedesignated swaps
February 15, 2018	March 31, 2020	December 31, 2033	$	120,000	(1)	$	(23,309)	3.19	%
Total			$	290,000		$	(23,264)

(1) The notional amounts of the swaps entered into on February 15, 2018 increase periodically until they reach the maximum notional amount of $425.0 million on September 28, 2029.

As of ~~September 29, 2021,~~March 30, 2022, the total notional amount of our interest rate swaps was in excess of 100% of our floating rate debt. Based on the ~~levels~~portion of ~~borrowings under~~ the ~~credit facility at September 29, 2021, if interest rates changed by~~swaps in excess of our floating rate debt as of March 30, 2022, a hypothetical change of 100 basis points in LIBOR would change our annual cash flow ~~and income before taxes would not change. However, depending~~by approximately $1.2 million. Depending on market considerations, fluctuations in the fair values of our interest rate swaps could be significant. With the exception of these changes in the fair value of our interest rate swaps and in the levels of borrowings under our credit facility, there have been no material changes in our quantitative and qualitative market risks since the prior reporting period. For additional information related to our interest rate swaps, including changes in the fair value, refer to Notes 6, 7 and 13 to our unaudited ~~Condensed~~ 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management conducted an evaluation (under the supervision and with the participation of our Chief Executive Officer, John C. Miller, 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, Messrs. Miller and 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 Messrs. Miller and Verostek, as appropriate to allow timely decisions regarding required disclosure.

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 ~~September 29, 2021~~March 30, 2022 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 ~~Condensed~~ 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 ~~30, 2020.~~29, 2021.

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 ~~September 29, 2021.~~March 30, 2022.

Period
Total Number of Shares Purchased
Average Price Paid Per Share (1)
Total Number of Shares Purchased as Part of Publicly Announced Programs (2)
Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs (2)
(In thousands, except per share amounts)
July 1, 2021 - July 28, 2021 — $ — — $ 248,004
July 29, 2021 - August 25, 2021 — — — $ 248,004
August 26, 2021 - September 29, 2021 404,737 16.20 404,737 $ 241,441
Total 404,737 $ 16.20 404,737


Period	Total Number of Shares Purchased	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Programs (2)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs (2)
	(In thousands, except per share amounts)
December 30, 2021 - January 26, 2022	422	$	15.71	422	$	210,768
January 27, 2022 - February 23, 2022	332	15.73		332	$	205,547
February 24, 2022 - March 30, 2022	—	—		—	$	205,547
Total	754	$	15.72	754

(1)Average price paid per share excludes commissions.

(2)On December 2, 2019, we announced that our Board of Directors approved a ~~new~~ share repurchase program, authorizing us to repurchase up to an additional $250 million of our common stock (in addition to prior authorizations). Such repurchases may take place from time to time 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 ~~September 29, 2021,~~March 30, 2022, we purchased ~~0.4~~0.8 million shares of our common stock for an aggregate consideration of approximately ~~$6.6~~$11.9 million pursuant to the share repurchase program.

3226

Item 6. Exhibits

The following are included as exhibits to this report:


Exhibit No.						Description
10.1						Fourth Amended and Restated Credit Agreement dated as of August 26, 2021 among Denny's, Inc., as the Borrower, Denny's Corporation, as Parent, and Certain Subsidiaries of Parent, as Guarantors, Wells Fargo Bank, National Association, as Administrative Agent and L/C Issuer, Truist Bank, Bank of the West, and Regions Bank, as Co-Syndication Agents, Cadence Bank N.A. and Fifth Third Bank, National Association as Co-Documentation Agents, and The Other Lenders Party Hereto, Wells Fargo Securities, LLC, Truist Securities, Inc., Bank of the West, and Regions Capital Markets, A Division of Regions Bank, as Joint Lead Arrangers and Joint Bookrunners.~~(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Denny's Corporation filed with the Commission on August 26, 2021).~~2022 Long-Term Incentive Program Restricted Stock Unit Award Certificate.

10.2						Fourth Amended and Restated Guarantee and Collateral Agreement dated as of August 26, 2021 among Denny's Inc., Denny's Realty, LLC, Denny's Corporation, DFO, LLC, the other Subsidiaries of Parent from time to time party hereto, and Wells Fargo Bank, National Association, as Administrative Agent. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Denny's Corporation filed with the Commission on August 26, 2021).2022 Long-Term Incentive Program Performance Share Unit Award Certificate.

31.1						Certification of John C. Miller, Chief Executive Officer of Denny's Corporation, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Robert P. Verostek, Executive Vice President and Chief Financial Officer of Denny's Corporation, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of John C. Miller, Chief Executive Officer of Denny's Corporation, and Robert P. Verostek, Executive Vice President and Chief Financial Officer of Denny's Corporation, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						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.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

3327

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:

~~November 2, 2021~~May 3, 2022

By:

/s/ Robert P. Verostek

Robert P. Verostek

Executive Vice President and
Chief Financial Officer

Date:

~~November 2, 2021~~May 3, 2022

By:

/s/ Jay C. Gilmore

Jay C. Gilmore

Senior Vice President,
Chief Accounting Officer and
Corporate Controller

3428


			Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
~~Condensed~~ Consolidated Balance Sheets			3
~~Condensed~~ Consolidated Statements of Operations			4
~~Condensed~~ Consolidated Statements of Comprehensive Income ~~(Loss)~~			5
~~Condensed~~ Consolidated Statements of Shareholders' Deficit			6
~~Condensed~~ Consolidated Statements of Cash Flows			87
Notes to ~~Condensed~~ Consolidated Financial Statements			98
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			1917
Item 3. Quantitative and Qualitative Disclosures About Market Risk			3024
Item 4. Controls and Procedures			3125

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			3226
Item 1A. Risk Factors			3226
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3226
Item 6. Exhibits			3327
Signatures			3428


	Domestic System-Wide Same-Store Sales1
	System Year-to-Date October 2021*: (6%)
	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct*
System	(31%)	(25%)	(9%)	(2%)	(3%)	1%	3%	(2%)	(1%)	1%

24/7 Units	(20%)	(16%)	2%	11%	11%	14%	15%	9%	9%	10%
Limited Hour Units	(38%)	(32%)	(16%)	(11%)	(12%)	(8%)	(7%)	(10%)	(10%)	(9%)
	*October results are preliminary.


	Domestic Average Units
	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct*
System	1,504	1,501	1,501	1,499	1,498	1,497	1,495	1,493	1,495	1,494

24/7 Units	519	532	569	566	561	566	576	590	626	665
Limited Hour Units	939	928	912	920	926	920	909	894	861	822
	*October results are preliminary.



	Payments Due by Period
	Total		Less than 1 Year		1-2 Years		3-4 Years		5 Years and Thereafter
	(In thousands)
Long-term debt	$	170,000	$	—	$	—	$	—	$	170,000
Interest obligations (a)	39,226		1,995		15,956		15,956		5,319
Purchase obligations (b)	18,087		4,177		13,910		—		—
Total	$	227,313	$	6,172	$	29,866	$	15,956	$	175,319