DENN 10-Q Quarterly Report Sept. 27, 2023

DENNY'S CORP

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denn-20230927

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 27, 2023

☐ 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

☐

Accelerated Filer

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 26, 2023, 53,085,444 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

TABLE OF CONTENTS


			Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Statements of Comprehensive Income			5
Consolidated Statements of Shareholders' Deficit			6
Consolidated Statements of Cash Flows			8
Notes to Consolidated Financial Statements			9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			30

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 5. Other Information			31
Item 6. Exhibits			32
Signatures			33

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Denny’s Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)


	September 27, 2023		December 28, 2022
	(In thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	1,022	$	3,523
Investments	1,255		1,746
Receivables, net	16,950		25,576
Inventories	2,354		5,538
Assets held for sale	1,557		1,403
Prepaid and other current assets	11,816		12,529
Total current assets	34,954		50,315
Property, net of accumulated depreciation of $ 158,275 and $ 153,334 , respectively	91,248		94,469
Finance lease right-of-use assets, net of accumulated amortization of $ 9,205 and $ 9,847 , respectively	5,988		6,499
Operating lease right-of-use assets, net	119,436		126,065
Goodwill	72,142		72,740
Intangible assets, net	93,845		95,034
Deferred financing costs, net	1,861		2,337

Other noncurrent assets	60,361		50,876
Total assets	$	479,835	$	498,335
Liabilities
Current liabilities:
Current finance lease liabilities	$	1,393	$	1,683
Current operating lease liabilities	14,917		15,310
Accounts payable	15,560		19,896
Other current liabilities	59,071		56,762
Total current liabilities	90,941		93,651
Long-term liabilities:
Long-term debt	248,100		261,500
Noncurrent finance lease liabilities	9,094		9,555
Noncurrent operating lease liabilities	117,027		123,404
Liability for insurance claims, less current portion	6,693		7,324
Deferred income taxes, net	12,867		7,419
Other noncurrent liabilities	30,911		32,598
Total long-term liabilities	424,692		441,800
Total liabilities	515,633		535,451
Shareholders' deficit
Common stock $ 0.01 par value; 135,000 shares authorized; September 27, 2023: 65,711 shares issued and 54,031 outstanding; December 28, 2022: 64,998 shares issued and 56,728 shares outstanding	$	657	$	650
Paid-in capital	147,393		142,136
Deficit	( 24,686 )		( 41,729 )
Accumulated other comprehensive loss, net	( 27,760 )		( 42,697 )
Treasury stock, at cost, 11,680 and 8,270 shares, respectively	( 131,402 )		( 95,476 )
Total shareholders' deficit	( 35,798 )		( 37,116 )
Total liabilities and shareholders' deficit	$	479,835	$	498,335

See accompanying notes

Denny’s Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands, except per share amounts)
Revenue:
Company restaurant sales	$	53,153	$	52,211	$	161,486	$	145,354
Franchise and license revenue	61,030		65,245		187,083		190,226
Total operating revenue	114,183		117,456		348,569		335,580
Costs of company restaurant sales, excluding depreciation and amortization:
Product costs	13,587		14,462		41,796		38,874
Payroll and benefits	19,754		20,176		60,482		55,598
Occupancy	4,182		4,294		12,381		11,316
Other operating expenses	8,370		9,519		24,294		26,116
Total costs of company restaurant sales, excluding depreciation and amortization	45,893		48,451		138,953		131,904
Costs of franchise and license revenue, excluding depreciation and amortization	29,810		34,579		92,657		100,513
General and administrative expenses	18,237		16,607		58,515		50,188
Depreciation and amortization	3,605		3,914		10,878		11,052
Operating (gains), losses and other charges, net	2,620		( 1,897 )		2,467		( 1,051 )
Total operating costs and expenses, net	100,165		101,654		303,470		292,606
Operating income	14,018		15,802		45,099		42,974
Interest expense, net	4,381		3,691		13,288		9,529
Other nonoperating expense (income), net	43		( 10,461 )		9,470		( 49,871 )
Income before income taxes	9,594		22,572		22,341		83,316
Provision for income taxes	1,686		5,489		5,298		21,375
Net income	$	7,908	$	17,083	$	17,043	$	61,941

Net income per share - basic	$	0.14	$	0.29	$	0.30	$	1.01
Net income per share - diluted	$	0.14	$	0.29	$	0.30	$	1.00

Basic weighted average shares outstanding	55,869		59,020		56,764		61,558
Diluted weighted average shares outstanding	56,082		59,040		56,973		61,686

See accompanying notes

Denny’s Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Net income	$	7,908	$	17,083	$	17,043	$	61,941
Other comprehensive income (loss), net of tax:
Minimum pension liability adjustment, net of tax of $ 4 , $ 8 , $ 30 and $ 23 , respectively	9		23		86		69
Changes in the fair value of cash flow hedges, net of tax of $ 4,597 , $ 956 , $ 5,893 and $ 3,242 , respectively	13,516		2,868		17,328		9,723
Reclassification of cash flow hedges to interest expense, net of tax of $( 352 ), $ 27 , $( 901 ) and $ 455 , respectively	( 1,034 )		80		( 2,650 )		1,363

Amortization of unrealized losses related to interest rate swaps to interest expense, net of tax of $ 24 , $ 3 , $ 59 and $ 4 , respectively	70		7		173		12
Other comprehensive income	12,561		2,978		14,937		11,167
Total comprehensive income	$	20,469	$	20,061	$	31,980	$	73,108

See accompanying notes

Denny’s Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Deficit

For the Quarters Ended September 27, 2023 and September 28, 2022

(Unaudited)


	Common Stock			Treasury Stock			Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss, Net		Total Shareholders’ Deficit
	Shares	Amount		Shares	Amount
	(In thousands)
Balance, June 28, 2023	65,708	$	657	( 10,000 )	$	( 114,866 )	$	144,506	$	( 32,594 )	$	( 40,321 )	$	( 42,618 )

Net income	—	—		—	—		—		7,908		—		7,908
Other comprehensive income	—	—		—	—		—		—		12,561		12,561

Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		2,887		—		—		2,887
Purchase of treasury stock, including excise tax	—	—		( 1,680 )	( 16,536 )		—		—		—		( 16,536 )



Issuance of common stock for share-based compensation	3	—		—	—		—		—		—		—

Balance, September 27, 2023	65,711	$	657	( 11,680 )	$	( 131,402 )	$	147,393	$	( 24,686 )	$	( 27,760 )	$	( 35,798 )


	Common Stock			Treasury Stock			Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss, Net		Total Shareholders’ Deficit
	Shares	Amount		Shares	Amount
	(In thousands)
Balance, June 29, 2022	64,998	$	650	( 6,654 )	$	( 79,841 )	$	138,347	$	( 71,583 )	$	( 46,281 )	$	( 58,708 )

Net income	—	—		—	—		—		17,083		—		17,083
Other comprehensive income	—	—		—	—		—		—		2,978		2,978

Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		1,887		—		—		1,887
Purchase of treasury stock	—	—		( 843 )	( 7,870 )		—		—		—		( 7,870 )





Balance, September 28, 2022	64,998	$	650	( 7,497 )	$	( 87,711 )	$	140,234	$	( 54,500 )	$	( 43,303 )	$	( 44,630 )

See accompanying notes

Denny’s Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Deficit

For the Three Quarters Ended September 27, 2023 and September 28, 2022

(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 28, 2022	64,998	$	650	( 8,270 )	$	( 95,476 )	$	142,136	$	( 41,729 )	$	( 42,697 )	$	( 37,116 )

Net income	—	—		—	—		—		17,043		—		17,043
Other comprehensive income	—	—		—	—		—		—		14,937		14,937

Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		5,264		—		—		5,264
Purchase of treasury stock, including excise tax	—	—		( 3,410 )	( 35,926 )		—		—		—		( 35,926 )



Issuance of common stock for share-based compensation	713	7		—	—		( 7 )		—		—		—

Balance, September 27, 2023	65,711	$	657	( 11,680 )	$	( 131,402 )	$	147,393	$	( 24,686 )	$	( 27,760 )	$	( 35,798 )


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

Net income	—	—		—	—		—		61,941		—		61,941
Other comprehensive income	—	—		—	—		—		—		11,167		11,167

Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		4,646		—		—		4,646
Purchase of treasury stock	—	—		( 5,507 )	( 57,119 )		—		—		—		( 57,119 )



Issuance of common stock for share-based compensation	798	8		—	—		( 8 )		—		—		—

Balance, September 28, 2022	64,998	$	650	( 7,497 )	$	( 87,711 )	$	140,234	$	( 54,500 )	$	( 43,303 )	$	( 44,630 )

See accompanying notes

Denny’s Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


	Three Quarters Ended
	September 27, 2023		September 28, 2022
	(In thousands)
Cash flows from operating activities:
Net income	$	17,043	$	61,941
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization	10,878		11,052
Operating (gains), losses and other charges, net	2,467		( 1,051 )
Losses (gains) and amortization on interest rate swaps, net	10,838		( 52,678 )
Amortization of deferred financing costs	476		475
(Gains) losses on investments	( 59 )		289
Gains on early termination of debt and leases	—		( 29 )
Deferred income tax expense	369		15,669
Share-based compensation expense	8,477		9,467
Changes in assets and liabilities, excluding acquisitions and dispositions:
Receivables	8,235		( 4,788 )
Inventories	3,184		( 3,866 )
Prepaids and other current assets	712		1,683
Other noncurrent assets	( 902 )		3,189
Operating lease assets and liabilities	( 479 )		( 560 )
Accounts payable	( 7,079 )		( 3,115 )
Other accrued liabilities	( 1,319 )		( 3,483 )
Other noncurrent liabilities	( 2,073 )		( 9,245 )
Net cash flows provided by operating activities	50,768		24,950
Cash flows from investing activities:
Capital expenditures	( 5,499 )		( 10,146 )
Acquisition of restaurant and real estate	( 1,227 )		( 750 )
Acquisition of Keke's Breakfast Cafe	—		( 81,500 )
Initial operating lease direct costs	( 400 )		—
Proceeds from sales of restaurants, real estate and other assets	3,161		4,114
Investment purchases	( 1,300 )		( 1,200 )
Proceeds from sale of investments	1,850		1,700
Refund of deposits for real estate acquisitions	—		3,624
Collections on notes receivable	391		184

Net cash flows used in investing activities	( 3,024 )		( 83,974 )
Cash flows from financing activities:
Revolver borrowings	100,300		156,325
Revolver payments	( 113,700 )		( 59,825 )
Repayments of finance leases	( 1,359 )		( 1,513 )

Tax withholding on share-based payments	( 3,007 )		( 4,781 )

Purchase of treasury stock	( 35,415 )		( 57,460 )

Net bank overdrafts	2,936		—
Net cash flows (used in) provided by financing activities	( 50,245 )		32,746
Decrease in cash and cash equivalents	( 2,501 )		( 26,278 )
Cash and cash equivalents at beginning of period	3,523		30,624
Cash and cash equivalents at end of period	$	1,022	$	4,346

See accompanying notes

Denny’s Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Introduction and Basis of Presentation

Denny’s Corporation, or the Company, is one of America’s largest full-service restaurant chains based on number of restaurants. As of September 27, 2023, the Company consisted of 1,644 restaurants, 1,570 of which were franchised/licensed restaurants and 74 of which were company operated.

The Company consists of the Denny’s brand ("Denny's") and the Keke’s Breakfast Café brand (“Keke’s”). Keke’s was acquired on July 20, 2022. As of September 27, 2023, the Denny's brand consisted of 1,588 restaurants, 1,522 of which were franchised/licensed restaurants and 66 of which were company operated. At September 27, 2023, the Keke's brand consisted of 56 restaurants, 48 of which were franchised restaurants and eight of which were company operated.

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

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

Note 2. Summary of Significant Accounting Policies

Newly Adopted Accounting Standards

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

Accounting Standards to be Adopted

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

Note 3. Receivables

Receivables consisted of the following:


	September 27, 2023		December 28, 2022
	(In thousands)
Receivables, net:
Trade accounts receivable from franchisees	$	12,544	$	13,314
Notes and loan receivables from franchisees	486		6,731

Vendor receivables	1,677		3,466
Credit card receivables	645		896
Other	1,795		1,545
Allowance for doubtful accounts	( 197 )		( 376 )
Total receivables, net	$	16,950	$	25,576

Note 4. Goodwill and Intangible Assets

The following table reflects the changes in carrying amount of goodwill:


			September 27, 2023
			(In thousands)
Balance, beginning of year			$	72,740

Reclassifications to assets held for sale			( 598 )

Balance, end of period			$	72,142

Goodwill by segment consisted of the following:
	September 27, 2023		December 28, 2022
	(In thousands)

Denny’s	$	37,527	$	37,527
Other	34,615		35,213
Total goodwill	$	72,142	$	72,740

Intangible assets consisted of the following:


	September 27, 2023				December 28, 2022
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Intangible assets with indefinite lives:
Trade names	$	79,687	$	—	$	79,687	$	—
Liquor licenses	120		—		120		—
Intangible assets with definite lives:
Reacquired franchise rights	9,594		5,495		10,489		5,697
Franchise agreements	10,700		761		10,700		265
Intangible assets, net	$	100,101	$	6,256	$	100,996	$	5,962

Amortization expense for intangible assets with definite lives totaled $ 0.4 million and $ 1.2 million for the quarter and year-to-date period ended September 27, 2023, respectively. Amortization expense for intangible assets with definite lives totaled $ 0.4 million and $ 1.1 million for the quarter and year-to-date period ended September 28, 2022, respectively.

Note 5. Other Current Liabilities

Other current liabilities consisted of the following:


	September 27, 2023		December 28, 2022
	(In thousands)
Accrued payroll	$	15,313	$	17,903
Current portion of liability for insurance claims	3,448		3,492
Accrued taxes	6,068		4,452
Accrued advertising	7,906		6,069
Gift cards	5,720		7,675
Accrued legal settlements	5,708		5,446
Accrued interest	4,513		1,142
Other	10,395		10,583
Other current liabilities	$	59,071	$	56,762

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)
	(In thousands )
Fair value measurements as of September 27, 2023:
Deferred compensation plan investments (1)	$	11,211	$	11,211	$	—	$	—
Interest rate swaps (2)	27,324		—		27,324		—
Investments (3)	1,255		—		1,255		—
Total	$	39,790	$	11,211	$	28,579	$	—

Fair value measurements as of December 28, 2022:
Deferred compensation plan investments (1)	$	10,818	$	10,818	$	—	$	—
Interest rate swaps (2)	20,047		—		20,047		—
Investments (3)	1,746		—		1,746		—
Total	$	32,611	$	10,818	$	21,793	$	—

(1) The fair values of our deferred compensation plan investments are based on the closing market prices of the elected investments and are included in other noncurrent assets in our Consolidated Balance Sheets.

(2) The fair values of our interest rate swaps are based upon Level 2 inputs, which include valuation models. The key inputs for the valuation models are quoted market prices, interest rates, forward yield curves and credit risk adjustments that are necessary to reflect the probability of default by the counterparty or us. For disclosures about the fair value measurements of our derivative instruments, see Note 7.

(3) The fair values of our investments are valued using a readily determinable net asset value per share based on the fair value of the underlying securities. There are no significant redemption restrictions associated with these investments.

Those assets and liabilities measured at fair value on a non-recurring basis are summarized below:


		Significant Unobservable Inputs (Level 3)		Impairment Charges for the Quarter Ended September 27, 2023
		(In thousands)
Fair value measurements as of September 27, 2023:
Assets held and used (1)		$	—	$	1,711

(1)	As of September 27, 2023, impaired assets were written down to their fair value. To determine fair value, we used the income approach, which assumes that the future cash flows reflect current market expectations. These fair value measurements require significant judgment using Level 3 inputs, such as discounted cash flows from operations, which are not observable from the market, directly or indirectly. There is uncertainty in the projected future cash flows used in the Company's impairment analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods.

Assets that are measured at fair value on a non-recurring basis include property, operating right-of-use assets, finance right-of-use assets, goodwill and intangible assets. During the quarter and year-to-date period ended September 27, 2023, we recognized impairment charges of $ 1.7 million and $ 1.8 million, respectively, related to certain of these assets. See Note 9.

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

Note 7. Long-Term Debt

The Company and certain of its subsidiaries have a credit facility consisting of a five-year $ 400 million senior secured revolver (with a $ 25 million letter of credit sublimit). The maturity date for the credit facility is August 26, 2026. The credit facility includes an accordion feature that would allow us to increase the size of the facility to $ 450 million. Borrowings bear a tiered interest rate, which is based on the Company's consolidated leverage ratio. On March 31, 2023, the credit facility was amended to change the benchmark interest rate from LIBOR to Adjusted Daily Simple SOFR.

The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit facility is guaranteed by the Company and its material subsidiaries and is secured by assets of the Company and its subsidiaries, including the stock of its subsidiaries (other than its insurance captive subsidiary). It includes negative covenants that are usual for facilities and transactions of this type. The credit facility also includes certain financial covenants with respect to a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. We were in compliance with all financial covenants as of September 27, 2023.

As of September 27, 2023, we had outstanding revolver loans of $ 248.1 million and outstanding letters of credit under the credit facility of $ 11.5 million. These balances resulted in unused commitments of $ 140.4 million as of September 27, 2023 under the credit facility.

As of September 27, 2023, borrowings under the credit facility bore interest at a rate of Adjusted Daily Simple SOFR plus 2.25 %. Letters of credit under the credit facility bore interest at a rate of 2.38 %. The commitment fee, paid on the unused portion of the credit facility, was set to 0.35 %.

Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 7.66 % and 6.37 % as of September 27, 2023 and December 28, 2022, respectively. Taking into consideration our interest rate swaps that are designated as cash flow hedges, the weighted-average interest rate of outstanding revolver loans was 5.28 % and 5.31 % as of September 27, 2023 and December 28, 2022, respectively.

Interest Rate Hedges

We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt. A summary of our interest rate swaps as of September 27, 2023 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		$	4,937	2.34	%
October 1, 2015	March 29, 2018	March 31, 2026	$	50,000		$	2,851	2.37	%
February 15, 2018	March 31, 2020	December 31, 2033	$	31,000	(1)	$	19,536	3.09	%
Total			$	201,000		$	27,324

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

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

Termination and Designation of Certain Interest Rate Swaps

During the quarter ended March 29, 2023, we terminated a portion of our hedging relationship entered into in 2018 (“2018 Swaps”), reducing the previous maximum notional amount of $ 425 million on August 31, 2033 to $ 335 million. As a result, we expect our total swaps to approximate 80 % of our outstanding debt prospectively. We received $ 1.5 million of cash as a result of the termination which is recorded as a component of operating activities in our Consolidated Statement of Cash Flows for the year-to-date period ended September 27, 2023.

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

Changes in Fair Value of Interest Rate Swaps

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

As of September 27, 2023, the fair value of the swaps designated as cash flow hedges was an asset of $ 27.3 million, recorded as a component of other noncurrent assets. The designated swaps have an offsetting amount (before taxes) recorded as a component of accumulated other comprehensive loss, net in our Consolidated Balance Sheets. See Note 13 for amounts recorded in accumulated other comprehensive loss related to interest rate swaps. We expect to reclassify $ 5.9 million from accumulated other comprehensive loss, net as a reduction to interest expense, net in our Consolidated Statements of Operations related to swaps designated as cash flow hedges during the next 12 months.

For the periods prior to their designation as cash flow hedges, changes in the fair value of the 2018 Swaps were recorded as a component of other nonoperating expense (income), net in our Consolidated Statements of Operations. For the year-to-date period ended September 27, 2023, we recorded expense of $ 10.6 million, and for the quarter and year-to-date period ended September 28, 2022, we recorded income of $ 10.8 million and $ 52.7 million, respectively, as a component of other nonoperating expense (income), net related to the 2018 Swaps resulting from changes in fair value.

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

At September 27, 2023, we had a total of $ 64.3 million (before taxes) included in accumulated other comprehensive loss, net related to i) the discontinuance of hedge accounting treatment related to certain cash flow hedges in prior years and ii) the fair value of certain swaps at the date of designation as cash flow hedges that are being amortized into our Consolidated Statements of Operations as a component of interest expense, net over the remaining term of the related swap.

For the quarter and year-to-date period ended September 27, 2023, we recorded unrealized losses of $ 0.1 million and $ 0.2 million, respectively, to interest expense, net. For the quarter and year-to-date period ended September 28, 2022, we recorded unrealized losses of less than $ 0.1 million to interest expense, net. We expect to amortize $ 0.6 million from accumulated other comprehensive loss, net to interest expense, net in our Consolidated Statements of Operations related to dedesignated interest rate swaps during the next 12 months.

Note 8. Revenues

The following table disaggregates our revenue by sales channel and type of good or service:


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Company restaurant sales	$	53,153	$	52,211	$	161,486	$	145,354
Franchise and license revenue:
Royalties	29,703		28,992		90,106		84,276
Advertising revenue	19,297		18,950		58,818		56,642
Initial and other fees	3,388		7,749		10,994		20,035
Occupancy revenue	8,642		9,554		27,165		29,273
Franchise and license revenue	61,030		65,245		187,083		190,226
Total operating revenue	$	114,183	$	117,456	$	348,569	$	335,580

Franchise occupancy revenue consisted of the following:


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Operating lease revenue	$	6,461	$	7,074	$	20,015	$	21,745
Variable lease revenue	2,181		2,480		7,150		7,528
Total occupancy revenue	$	8,642	$	9,554	$	27,165	$	29,273

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

Deferred franchise revenue consists primarily of the unamortized portion of initial franchise fees that are currently being amortized into revenue and amounts related to development agreements and unopened restaurants that will begin amortizing into revenue when the related restaurants are opened. Deferred franchise revenue represents our remaining performance obligations to our franchisees, excluding amounts of variable consideration related to sales-based royalties and advertising.

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


	(In thousands)
Balance, December 28, 2022	$	20,751
Fees received from franchisees	1,243

Revenue recognized (1)	( 2,387 )
Balance, September 27, 2023	19,607
Less current portion included in other current liabilities	2,179
Deferred franchise revenue included in other noncurrent liabilities	$	17,428

(1) Of this amount $ 2.0 million was included in the deferred franchise revenue balance as of December 28, 2022.

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

The components of the change in contract assets are as follows:


	(In thousands)
Balance, December 28, 2022	$	5,361
Franchisee deferred costs	2,371
Contract asset amortization	( 1,032 )
Balance, September 27, 2023	6,700
Less current portion included in other current assets	1,016
Contract assets included in other noncurrent assets	$	5,684

The Company purchases equipment related to various programs for franchise restaurants, including kitchen and point-of-sale system equipment. We bill our franchisees and recognize revenue when the related equipment is installed, less amounts contributed from the Company, which have been deferred as contract assets in the table above. We recognized $ 1.7 million and $ 4.6 million of revenue, recorded as a component of initial and other fees, related to the sale of equipment to franchisees during the quarter and year-to-date period ended September 27, 2023, respectively. We recognized $ 5.8 million and $ 13.8 million of revenue, recorded as a component of initial and other fees, related to the sale of equipment to franchisees during the quarter and year-to-date period ended September 28, 2022, respectively. As of September 27, 2023, we had $ 0.8 million in inventory and $ 0.6 million in receivables related to the purchased equipment. As of December 28, 2022, we had $ 3.6 million in inventory and $ 6.6 million in receivables related to the kitchen equipment rollout.

Deferred gift card liabilities consist of the unredeemed portion of gift cards sold in company restaurants and at third party locations. The balance of deferred gift card liabilities represents our remaining performance obligations to our customers. The balance of deferred gift card liabilities as of September 27, 2023 and December 28, 2022 was $ 5.7 million and $ 7.7 million, respectively. During the year-to-date period ended September 27, 2023, we recognized revenue of $ 0.4 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
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Gains on sales of assets and other, net	$	( 88 )	$	( 3,066 )	$	( 2,132 )	$	( 3,311 )
Restructuring charges and exit costs	997		472		2,759		1,297
Impairment charges	1,711		697		1,840		963
Operating (gains), losses and other charges, net	$	2,620	$	( 1,897 )	$	2,467	$	( 1,051 )

During the year-to-date period ended September 27, 2023, gains on sales of assets and other, net were primarily related to the sale of three parcels of real estate. During the quarter and year-to-date period ended September 28, 2022, gains on sales of assets and other, net were primarily related to the sale of two parcels of real estate.

As of September 27, 2023, we had recorded assets held for sale at the lesser of the carrying value or fair value amount of $ 1.6 million (consisting of property of $ 0.9 million, goodwill of $ 0.6 million and other assets of $ 0.1 million) related to one parcel of real estate and three Keke's restaurants. As of December 28, 2022, we had recorded assets held for sale at their carrying amount of $ 1.4 million (consisting of property of $ 1.1 million and other assets of $ 0.3 million) related to four parcels of real estate.

Restructuring charges and exit costs consisted of the following:


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Exit costs	$	12	$	38	$	64	$	88
Severance and other restructuring charges	985		434		2,695		1,209
Total restructuring charges and exit costs	$	997	$	472	$	2,759	$	1,297

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

As of September 27, 2023 and December 28, 2022, we had accrued severance and other restructuring charges of $ 2.1 million and $ 0.7 million, respectively. The balance as of September 27, 2023 is expected to be paid primarily during the next 12 months.

We recorded impairment charges of $ 1.7 million and $ 1.8 million related to property and right-of-use assets for the quarter and year-to-date period ended September 27, 2023, respectively, resulting from our assessment of underperforming restaurants and assets being classified as held for sale. The $ 1.7 million included $ 0.9 million related to property and $ 0.8 million related to operating lease right-of-use assets. The $ 1.8 million included $ 1.0 million related to property and $ 0.8 million related to operating lease right-of-use assets.

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
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Employee share awards	$	2,659	$	1,706	$	7,793	$	8,784
Restricted stock units for board members	205		241		684		683
Total share-based compensation	$	2,864	$	1,947	$	8,477	$	9,467

Employee Share Awards

During the year-to-date period ended September 27, 2023, we granted certain employees 0.3 million performance share units ("PSUs") with a weighted average grant date fair value of $ 18.39 per share that vest based on the total shareholder return (“TSR”) of our common stock compared to the TSRs of a group of peer companies and 0.3 million PSUs with a weighted average grant date fair value of $ 11.90 per share that vest based on our Adjusted EPS growth rate versus plan, as defined under the terms of the award. As the TSR based PSUs contain a market condition, a Monte Carlo valuation was used to determine the grant date fair value. The performance period for these PSUs is the three-year fiscal period beginning December 29, 2022 and ending December 31, 2025. The PSUs will vest and be earned at the end of the performance period at which point the relative TSR and Adjusted EPS growth rate achievement percentages will be applied to the vested units (from 0 % to 200 % of the target award). We recognize compensation cost associated with 0.5 million of these PSU awards over the entire performance period on a straight-line basis, with compensation cost for the remaining 0.1 million PSU awards recognized on a graded-vesting basis due to the accelerated vesting terms for certain retirement eligible individuals.

During the year-to-date period ended September 27, 2023, we also granted certain employees 0.7 million restricted stock units ("RSUs") with a weighted average grant date fair value of $ 11.83 per share. These RSUs generally vest evenly over the three-year fiscal period beginning December 29, 2022 and ending December 31, 2025. We recognize compensation cost associated with these RSU awards on a straight-line basis over the entire performance period of the award.

During the year-to-date period ended September 27, 2023, we issued 0.5 million shares of common stock related to vested PSUs and RSUs. In addition, 0.3 million shares of common stock were withheld in lieu of taxes related to vested PSUs and RSUs.

As of September 27, 2023, we had $ 16.3 million of unrecognized compensation cost related to unvested PSU awards and RSU awards outstanding, which have a weighted average remaining contractual term of 1.9 years.

Restricted Stock Units for Board Members

During the year-to-date period ended September 27, 2023, we granted less than 0.1 million RSUs (which are equity classified) with a grant date fair value of $ 10.71 per unit to non-employee members of our Board of Directors. The RSUs vest after a one year service period. A director may elect to convert these awards into shares of common stock either on a specific date in the future (while still serving as a member of our Board of Directors), upon termination as a member of our Board of Directors, or in three equal annual installments commencing after termination of service as a member of our Board of Directors.

During the year-to-date period ended September 27, 2023, 0.2 million RSUs were converted into shares of common stock.

As of September 27, 2023, we had $ 0.5 million of unrecognized compensation cost related to unvested RSU awards outstanding, which have a weighted average remaining contractual term of 0.6 years.

Note 11. Income Taxes

The effective income tax rate was 17.6 % for the quarter and 23.7 % for the year-to-date period ended September 27, 2023, compared to 24.3 % and 25.7 % for the prior year periods, respectively. The effective income tax rate for the quarter and year-to-date period ended September 27, 2023 included discrete items relating to share-based compensation of ( 2.5 )% and 0.4 %, respectively.

Note 12. Net Income Per Share

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


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands, except per share amounts)
Net income	$	7,908	$	17,083	$	17,043	$	61,941

Weighted average shares outstanding - basic	55,869		59,020		56,764		61,558
Effect of dilutive share-based compensation awards	213		20		209		128
Weighted average shares outstanding - diluted	56,082		59,040		56,973		61,686

Net income per share - basic	$	0.14	$	0.29	$	0.30	$	1.01
Net income per share - diluted	$	0.14	$	0.29	$	0.30	$	1.00

Anti-dilutive share-based compensation awards	735		641		788		737

Note 13. Shareholders' Deficit

Share Repurchases

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

During the year-to-date period ended September 27, 2023, we repurchased a total of 3.4 million shares of our common stock for $ 35.9 million, including excise taxes. This brings the total amount repurchased under the current authorization to $ 133.4 million, leaving $ 116.6 million that can be used to repurchase our common stock under this authorization as of September 27, 2023. Repurchased shares are included as treasury stock in our Consolidated Balance Sheets and our Consolidated Statements of Shareholders' Deficit.

As of September 27, 2023, 11.7 million shares were held in treasury stock.

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
	(In thousands)
Balance as of December 28, 2022	$	( 555 )	$	( 42,142 )	$	( 42,697 )

Amortization of net loss (1)	116		—		116

Changes in the fair value of cash flow hedges	—		23,221		23,221
Reclassification of cash flow hedges to interest expense, net (2)	—		( 3,551 )		( 3,551 )

Amortization of unrealized losses related to interest rate swaps to interest expense, net	—		232		232
Income tax expense related to items of other comprehensive income (loss)	( 30 )		( 5,051 )		( 5,081 )
Balance as of September 27, 2023	$	( 469 )	$	( 27,291 )	$	( 27,760 )

(1) Before-tax amount related to our defined benefit plans that was reclassified from accumulated other comprehensive loss, net and included as a component of pension expense within general and administrative expenses in our Consolidated Statements of Operations during the year-to-date period ended September 27, 2023.

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

Note 14. Commitments and Contingencies

Legal Proceedings

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

Note 15. Supplemental Cash Flow Information


	Three Quarters Ended
	September 27, 2023		September 28, 2022
	(In thousands)
Income taxes paid, net	$	6,531	$	6,161
Interest paid	$	9,346	$	9,117

Noncash investing and financing activities:

Business acquisition payable	$	—	$	1,000
Accrued purchase of property	$	102	$	—
Issuance of common stock, pursuant to share-based compensation plans	$	5,638	$	9,547
Receipt of real estate receivable	$	—	$	3,000
Execution of finance leases	$	593	$	506
Treasury stock payable	$	1,053	$	292

Note 16. Segment Information

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

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

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

The following tables present revenues by segment and a reconciliation of restaurant-level operating margin to net income:


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
Revenues by operating segment:	(In thousands)
Denny’s	$	109,136	$	113,725	$	332,952	$	331,849
Other	5,047		3,731		15,617		3,731
Total operating revenue	$	114,183	$	117,456	$	348,569	$	335,580

Segment income:
Denny’s	$	36,944	$	33,227	$	111,525	$	101,964
Other	1,536		1,199		5,434		1,199
Total restaurant-level operating margin	$	38,480	$	34,426	$	116,959	$	103,163

General and administrative expenses	$	18,237	$	16,607	$	58,515	$	50,188
Depreciation and amortization	3,605		3,914		10,878		11,052
Operating (gains), losses and other charges, net	2,620		( 1,897 )		2,467		( 1,051 )
Total other operating expenses	24,462		18,624		71,860		60,189
Operating income	14,018		15,802		45,099		42,974
Interest expense, net	4,381		3,691		13,288		9,529
Other nonoperating expense (income), net	43		( 10,461 )		9,470		( 49,871 )
Income before income taxes	9,594		22,572		22,341		83,316
Provision for income taxes	1,686		5,489		5,298		21,375
Net income	$	7,908	$	17,083	$	17,043	$	61,941


	September 27, 2023		December 28, 2022
Segment assets:	(In thousands)
Denny’s	$	376,123	$	394,051
Other	103,712		104,284
Total assets	$	479,835	$	498,335

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our Consolidated Financial Statements and the notes thereto that appear elsewhere in this report and the MD&A contained in our Annual Report on Form 10-K for the fiscal year ended December 28, 2022.

Forward-Looking Statements

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

Overview

We manage our business by brand and as a result have identified two operating segments, Denny’s and Keke’s. As of September 27, 2023, the Denny's brand consisted of 1,588 restaurants, 1,522 of which were franchised/licensed restaurants and 66 of which were company operated. At September 27, 2023, the Keke's brand consisted of 56 restaurants, 48 of which were franchised restaurants and eight of which were company operated.

In addition, we have identified Denny’s as a reportable segment. The Denny’s reportable segment includes the results of all company and franchised and licensed Denny’s restaurants. We completed the acquisition of Keke's on July 20, 2022. Total revenues at Keke’s for the quarter and three quarters ended September 27, 2023 represented less than 5% of total consolidated revenues, therefore, the Keke’s operating segment is included in Other for segment reporting purposes.

Information discussed in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the Denny’s brand unless otherwise noted.

Statements of Operations

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


	Quarter Ended								Three Quarters Ended
	September 27, 2023				September 28, 2022				September 27, 2023				September 28, 2022
	(In thousands)
Revenue:
Company restaurant sales	$	53,153	46.6	%	$	52,211	44.5	%	$	161,486	46.3	%	$	145,354	43.3	%
Franchise and license revenue	61,030		53.4	%	65,245		55.5	%	187,083		53.7	%	190,226		56.7	%
Total operating revenue	114,183		100.0	%	117,456		100.0	%	348,569		100.0	%	335,580		100.0	%
Costs of company restaurant sales, excluding depreciation and amortization (a):
Product costs	13,587		25.6	%	14,462		27.7	%	41,796		25.9	%	38,874		26.7	%
Payroll and benefits	19,754		37.2	%	20,176		38.6	%	60,482		37.5	%	55,598		38.3	%
Occupancy	4,182		7.9	%	4,294		8.2	%	12,381		7.7	%	11,316		7.8	%
Other operating expenses	8,370		15.7	%	9,519		18.2	%	24,294		15.0	%	26,116		18.0	%
Total costs of company restaurant sales, excluding depreciation and amortization	45,893		86.3	%	48,451		92.8	%	138,953		86.0	%	131,904		90.7	%
Costs of franchise and license revenue, excluding depreciation and amortization (a)	29,810		48.8	%	34,579		53.0	%	92,657		49.5	%	100,513		52.8	%
General and administrative expenses	18,237		16.0	%	16,607		14.1	%	58,515		16.8	%	50,188		15.0	%
Depreciation and amortization	3,605		3.2	%	3,914		3.3	%	10,878		3.1	%	11,052		3.3	%
Operating (gains), losses and other charges, net	2,620		2.3	%	(1,897)		(1.6)	%	2,467		0.7	%	(1,051)		(0.3)	%
Total operating costs and expenses, net	100,165		87.7	%	101,654		86.5	%	303,470		87.1	%	292,606		87.2	%
Operating income	14,018		12.3	%	15,802		13.5	%	45,099		12.9	%	42,974		12.8	%
Interest expense, net	4,381		3.8	%	3,691		3.1	%	13,288		3.8	%	9,529		2.8	%
Other nonoperating expense (income), net	43		0.0	%	(10,461)		(8.9)	%	9,470		2.7	%	(49,871)		(14.9)	%
Income before income taxes	9,594		8.4	%	22,572		19.2	%	22,341		6.4	%	83,316		24.8	%
Provision for income taxes	1,686		1.5	%	5,489		4.7	%	5,298		1.5	%	21,375		6.4	%
Net income	$	7,908	6.9	%	$	17,083	14.5	%	$	17,043	4.9	%	$	61,941	18.5	%

(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.


Statistical Data	Quarter Ended		Three Quarters Ended
	September 27, 2023	September 28, 2022	September 27, 2023	September 28, 2022
	(Dollars in thousands)
Denny's
Company average unit sales	$755	$766	$2,303	$2,209
Franchise average unit sales	$458	$435	$1,376	$1,281
Company equivalent units (a)	66	65	65	64
Franchise equivalent units (a)	1,523	1,560	1,525	1,566
Company same-store sales (decrease) increase vs. prior year (b)(c)	(1.4)%	7.1%	4.1%	12.1%
Domestic franchise same-store sales increase vs. prior year (b)(c)	2.1%	1.1%	4.3%	7.6%

Keke's (d)
Company average unit sales	$429	$334	$1,354	$334
Franchise average unit sales	$430	$349	$1,397	$349
Company equivalent units (a)	8	6	8	2
Franchise equivalent units (a)	48	34	47	11
Company same-store sales decrease (b)	(3.4)%	N/A	(3.4)%	N/A
Franchise same-store sales decrease (b)	(5.3)%	N/A	(5.3)%	N/A

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

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

(d) Effective July 20, 2022, the Company acquired Keke's, as such data for the quarter and year-to-date period ended September 28, 2022 only represent post-acquisition results.


Unit Activity	Quarter Ended		Three Quarters Ended
	September 27, 2023	September 28, 2022	September 27, 2023	September 28, 2022
Denny's
Company restaurants, beginning of period	66	65	66	65

Units acquired from franchisees	—	1	—	1


End of period	66	66	66	66

Franchised and licensed restaurants, beginning of period	1,525	1,566	1,536	1,575
Units opened	7	7	21	16

Units acquired by Company	—	(1)	—	(1)
Units closed	(10)	(25)	(35)	(43)
End of period	1,522	1,547	1,522	1,547
Total restaurants, end of period	1,588	1,613	1,588	1,613


	Quarter Ended		Three Quarters Ended
	September 27, 2023	September 28, 2022	September 27, 2023	September 28, 2022
Keke's
Company restaurants, beginning of period	8	—	8	—

Units acquired	—	8	—	8

End of period	8	8	8	8

Franchised restaurants, beginning of period	47	—	46	—
Units opened	1	1	2	1
Units acquired	—	44	—	44

End of period	48	45	48	45
Total restaurants, end of period	56	53	56	53

Company Restaurant Operations

Company restaurant sales increased $0.9 million, or 1.8%, for the quarter ended September 27, 2023 and $16.1 million, or 11.1%, year-to-date compared to the prior year periods. Company sales from Keke's increased $0.8 million and $8.1 million during the quarter and year-to-date period ended September 27, 2023, respectively, as a result of its acquisition on July 20, 2022. The increases in Denny's sales were primarily driven by increases in guest check average resulting from price increases to partially offset inflationary costs and one additional equivalent unit during the quarter and year-to-date period ended September 27, 2023. Denny's same-store sales decreased 1.4% for the current quarter and increased 4.1% year-to-date as compared to the prior year periods.

Total costs of company restaurant sales as a percentage of company restaurant sales were 86.3% for the quarter ended September 27, 2023 and 86.0% year-to-date compared to 92.8% and 90.7% for the prior year periods, respectively.

Product costs as a percentage of company restaurant sales were 25.6% for the quarter ended September 27, 2023 and 25.9% year-to-date compared to 27.7% and 26.7% for the prior year periods, respectively, primarily due to increased pricing for both the quarter and year-to-date period, partially offset by higher commodity costs for the year-to-date period.

Payroll and benefits as a percentage of company restaurant sales were 37.2% for the quarter ended September 27, 2023 and 37.5% year-to-date compared to 38.6% and 38.3%, respectively, in the prior year periods. The current quarter decreased as a percentage of company restaurant sales primarily due to a 0.6 percentage point decrease in incentive compensation. The year-to-date decrease was primarily due to a 0.8 percentage point decrease in payroll costs due to the leveraging effect of higher sales and a 0.4 percentage point decrease in incentive compensation. The decrease was partially offset by a 0.5 percentage point increase in workers' compensation costs primarily resulting from positive claims development in the prior year period.

Occupancy costs as a percentage of company restaurant sales were 7.9% for the quarter ended September 27, 2023 and 7.7% year-to-date compared to 8.2% and 7.8%, respectively, in the prior year periods. The current quarter decrease as a percentage of company restaurant sales was primarily due to a 0.8 percentage point decrease in general liability insurance costs resulting from negative claims development in the prior year period, partially offset by a 0.4 percentage point increase in rents and property taxes. The year-to-date decrease as a percentage of company restaurant sales was primarily due to a 0.5 percentage point decrease in general liability costs primarily resulting from negative claims development in the prior year period, partially offset by a 0.4 percentage point increase in rents and property taxes.

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


	Quarter Ended								Three Quarters Ended
	September 27, 2023				September 28, 2022				September 27, 2023				September 28, 2022
	(In thousands)
Utilities	$	2,120	4.0	%	$	1,984	3.8	%	$	6,037	3.7	%	$	5,211	3.6	%
Repairs and maintenance	996		1.9	%	1,089		2.1	%	2,667		1.7	%	2,803		1.9	%
Marketing	1,393		2.6	%	1,340		2.6	%	4,207		2.6	%	3,877		2.7	%
Legal settlements	245		0.5	%	1,567		3.0	%	475		0.3	%	4,223		2.9	%
Other direct costs	3,616		6.8	%	3,539		6.8	%	10,908		6.8	%	10,002		6.9	%
Other operating expenses	$	8,370	15.7	%	$	9,519	18.2	%	$	24,294	15.0	%	$	26,116	18.0	%

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

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
	September 27, 2023				September 28, 2022				September 27, 2023				September 28, 2022
	(In thousands)
Royalties	$	29,703	48.7	%	$	28,992	44.4	%	$	90,106	48.2	%	$	84,276	44.3	%
Advertising revenue	19,297		31.6	%	18,950		29.0	%	58,818		31.4	%	56,642		29.8	%
Initial and other fees	3,388		5.6	%	7,749		11.9	%	10,994		5.9	%	20,035		10.5	%
Occupancy revenue	8,642		14.2	%	9,554		14.6	%	27,165		14.5	%	29,273		15.4	%
Franchise and license revenue	$	61,030	100.0	%	$	65,245	100.0	%	$	187,083	100.0	%	$	190,226	100.0	%

Advertising costs	$	19,297	31.6	%	$	18,950	29.0	%	$	58,818	31.4	%	$	56,642	29.8	%
Occupancy costs	5,389		8.8	%	5,910		9.1	%	16,853		9.0	%	18,351		9.6	%
Other direct costs	5,124		8.4	%	9,719		14.9	%	16,986		9.1	%	25,520		13.4	%
Costs of franchise and license revenue	$	29,810	48.8	%	$	34,579	53.0	%	$	92,657	49.5	%	$	100,513	52.8	%

Franchise and license revenue decreased $4.2 million, or 6.5%, for the quarter ended September 27, 2023 and decreased $3.1 million, or 1.7%, year-to-date compared to the prior year periods. Royalties increased $0.7 million, or 2.5%, and $5.8 million, or 6.9%, for the current quarter and year-to-date period, respectively, compared to the prior year periods. Royalties from Keke's franchise restaurants increased $0.3 million and $2.9 million during the quarter and year-to-date period ended September 27, 2023, respectively, as a result of its acquisition on July 20, 2022. The increase in royalties also includes Denny's domestic franchise same-store sales increases of 2.1% for the current quarter and 4.3% year-to-date as compared to the prior year periods. These increases were partially offset by the impacts of fewer Denny's franchise equivalent units for the current quarter and year-to-date period.

Advertising revenue increased $0.3 million, or 1.8%, for the current quarter and $2.2 million, or 3.8%, year-to-date compared to the prior year periods. The increases in advertising revenue also include the impact from the 2.1% and 4.3% increases in Denny's franchise domestic same-store sales for the current quarter and year-to-date period, respectively, compared to the prior year periods. The increases during the current quarter and year-to-date period were also partially due to $0.2 million and $0.4 million collected from Keke's franchise restaurants, respectively. These increases were partially offset by the impact of fewer Denny's franchise equivalent units for the current quarter and year-to-date period.

Initial and other fees decreased $4.4 million, or 56.3%, for the quarter ended September 27, 2023 and $9.0 million, or 45.1%, year-to-date compared to the prior year periods. The decreases in initial and other fees primarily resulted from a $4.2 million and $9.2 million decrease in revenue from the sale of equipment to franchisees during the current quarter and year-to-date period, respectively, as our kitchen modernization program has been substantially completed. The revenue recorded related to the sale of equipment has an equal and offsetting expense recorded in other direct costs as described below. Occupancy revenue

decreased $0.9 million, or 9.5%, for the current quarter and $2.1 million, or 7.2%, year-to-date compared to the prior year periods, primarily due to lease terminations.

Costs of franchise and license revenue decreased $4.8 million, or 13.8%, for the quarter ended September 27, 2023 and $7.9 million, or 7.8%, year-to-date compared to the prior year periods. Advertising costs increased $0.3 million, or 1.8%, for the current quarter and $2.2 million, or 3.8%, year-to-date, which corresponds to the related advertising revenue increase noted above. Occupancy costs decreased $0.5 million, or 8.8%, for the current quarter and $1.5 million, or 8.2%, year-to-date compared to the prior year periods, primarily due to lease terminations, which corresponds to the related occupancy revenue decrease noted above. Other direct franchise costs decreased $4.6 million, or 47.3%, for the current quarter and $8.5 million, or 33.4%, year-to-date compared to the prior year periods. The decreases in other direct franchise costs were primarily due to a decrease of $4.2 million of expense for the current quarter and $9.2 million of expense year-to-date related to the cost of equipment sold to franchisees as mentioned above. Additionally, other direct franchise costs included an increase of $0.4 million and $0.7 million in franchise administrative costs for the current quarter and year-to-date period, respectively. As a result of the changes in franchise and license revenue discussed above, costs of franchise and license revenue decreased to 48.8% and 49.5% of franchise and license revenue for the quarter and year-to-date period ended September 27, 2023, respectively, from 53.0% and 52.8% for the prior year periods, respectively.

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
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Corporate administrative expenses	$	14,580	$	13,758	$	43,919	$	38,303
Share-based compensation	2,864		1,947		8,477		9,467
Incentive compensation	1,049		1,187		5,335		4,945
Deferred compensation valuation adjustments	(256)		(285)		784		(2,527)
Total general and administrative expenses	$	18,237	$	16,607	$	58,515	$	50,188

Corporate administrative expenses increased $0.8 million for the quarter ended September 27, 2023 and $5.6 million for year-to-date period ended September 27, 2023 compared to the prior year periods. The increases were primarily due to compensation increases and administrative costs related to Keke's. Share-based compensation increased $0.9 million for the current quarter primarily due to having three long-term incentive plans vesting compared to two plans in the prior year quarter as a result of the 2020 long-term incentive plan fully vesting in May 2022. Share-based compensation decreased $1.0 million year-to-date primarily due to forfeitures. 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
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Depreciation of property and equipment	$	2,722	$	2,944	$	8,118	$	8,293
Amortization of finance lease ROU assets	348		414		1,099		1,293
Amortization of intangible and other assets	535		556		1,661		1,466
Total depreciation and amortization expense	$	3,605	$	3,914	$	10,878	$	11,052

Depreciation and amortization expense decreased during the quarter and year-to-date period ended September 27, 2023, primarily due to certain assets becoming fully depreciated.

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


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Gains on sales of assets and other, net	$	(88)	$	(3,066)	$	(2,132)	$	(3,311)
Restructuring charges and exit costs	997		472		2,759		1,297
Impairment charges	1,711		697		1,840		963
Operating (gains), losses and other charges, net	$	2,620	$	(1,897)	$	2,467	$	(1,051)

Gains on sales of assets and other, net for the year-to-date period ended September 27, 2023 were primarily related to the sale of three parcels of real estate. Gains on sales of assets and other, net for the quarter and year-to-date period ended September 28, 2022 were primarily related to the sale of two parcels of real estate.

Restructuring charges and exit costs consisted of the following:


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Exit costs	$	12	$	38	$	64	$	88
Severance and other restructuring charges	985		434		2,695		1,209
Total restructuring and exit costs	$	997	$	472	$	2,759	$	1,297

Total restructuring and exit costs increased $0.5 million and $1.5 million for the quarter and year-to-date period ended September 27, 2023, respectively. The current quarter and year-to-date increases were primarily due to severance costs related to changes in our leadership team.

We recorded impairment charges of $1.7 million (consisting of property and right-of-use assets) during the quarter ended September 27, 2023, resulting from our assessment of underperforming restaurants and recoverability of right-of-use assets. We recorded impairment charges of $0.7 million and $1.0 million (consisting of property and right-of-use assets) during the quarter and year-to-date period ended September 28, 2022, respectively, resulting from our assessment of underperforming restaurants and recoverability of right-of-use assets.

Operating income was $14.0 million for the current quarter and $45.1 million year-to-date compared to $15.8 million and $43.0 million, respectively, for the prior year periods.

Interest expense, net consisted of the following:


	Quarter Ended				Three Quarters Ended
	September 27, 2023		September 28, 2022		September 27, 2023		September 28, 2022
	(In thousands)
Interest on credit facility	$	4,823	$	2,637	$	14,053	$	4,666
Interest (income) expense on interest rate swaps	(1,386)		106		(3,551)		1,817
Interest on finance lease liabilities	529		581		1,618		1,783
Letters of credit and other fees	202		224		598		812
Interest income	(40)		(26)		(139)		(42)
Total cash interest, net	4,128		3,522		12,579		9,036
Amortization of deferred financing costs	159		158		476		475
Amortization of interest rate swap losses	93		10		231		16
Interest accretion on other liabilities	1		1		2		2
Total interest expense, net	$	4,381	$	3,691	$	13,288	$	9,529

Total cash interest expense, net increased by $0.6 million for the current quarter and $3.5 million year-to-date compared to the prior year periods. These increases were primarily due to increased average borrowings and higher average interest rates, partially offset by our effective interest rate swaps.

Other nonoperating expense (income), net was expense of less than $0.1 million for the current quarter and $9.5 million year-to-date, compared to income of $10.5 million and $49.9 million for the prior year periods, respectively. Other nonoperating expense for the current quarter primarily consisted of $0.1 million of losses on deferred compensation plan investments. The year-to-date period primarily consisted of $10.6 million of losses related to valuation adjustments for dedesignated interest rate hedges, partially offset by gains of $1.0 million on deferred compensation plan investments. Prior year other nonoperating income, net for the quarter primarily consisted of $10.8 million of gains related to dedesignated interest rate swap valuation adjustments, partially offset by losses of $0.3 million on deferred compensation plan investments. The prior year-to-date period primarily consisted of $52.7 million of gains on interest rate swap valuation adjustments, partially offset by $2.6 million of losses on deferred compensation plan investments.

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

Provision for income taxes was $1.7 million for the quarter ended September 27, 2023 and $5.3 million year-to-date, compared to $5.5 million and $21.4 million, respectively, for the prior year periods. The effective tax rate was 17.6% for the current quarter and 23.7% year-to-date, compared to 24.3% and 25.7% for the prior year periods. The effective income tax rate for the quarter and year-to-date period ended September 27, 2023 included the impact of discrete items relating to share-based compensation of (2.5)% and 0.4%, respectively.

Net income was $7.9 million for the quarter ended September 27, 2023 and $17.0 million year-to-date compared to $17.1 million and $61.9 million, respectively, for the prior year periods.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash generated from operations and borrowings under our credit facility (as described below). Principal uses of cash are operating expenses, capital expenditures, the repurchase of shares of our common stock, and in the prior year, the acquisition of Keke's.

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


	Three Quarters Ended
	September 27, 2023		September 28, 2022
	(In thousands)
Net cash provided by operating activities	$	50,768	$	24,950
Net cash used in investing activities	(3,024)		(83,974)
Net cash (used in) provided by financing activities	(50,245)		32,746
Decrease in cash and cash equivalents	$	(2,501)	$	(26,278)

Net cash flows provided by operating activities were $50.8 million for the year-to-date period ended September 27, 2023 compared to $25.0 million for the year-to-date period ended September 28, 2022. The increase in net cash flows provided by operating activities was primarily due to the timing of inventory purchases, receivable collections, and accrual payments related to our franchise kitchen equipment project over the past two years. We believe that our estimated cash flows from operations, combined with our capacity for additional borrowings under our credit facility and cash on hand, will enable us to meet our anticipated cash requirements and fund capital expenditures over the next 12 months.

Net cash flows used in investing activities were $3.0 million for the year-to-date period ended September 27, 2023. These cash flows included capital expenditures of $5.5 million, investment purchases of $1.3 million, and a real estate acquisition of $1.2 million, partially offset by net proceeds from the sale of three parcels of real estate for $3.1 million and net investment proceeds of $1.9 million. Net cash flows used in investing activities were $84.0 million for the year-to-date period ended September 28, 2022. These cash flows included $81.5 million for the acquisition of Keke's, $0.8 million for the acquisition of one Denny's franchised restaurant and capital expenditures of $10.1 million, partially offset by proceeds from the sale of two parcels of real estate of $4.1 million, real estate deposit refunds of $3.6 million and net investment proceeds of $0.5 million.

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


	Three Quarters Ended
	September 27, 2023		September 28, 2022
	(In thousands)
Facilities	$	3,199	$	3,618
New construction	730		29
Remodeling	404		3,738
Information technology	732		2,246
Other	434		515
Capital expenditures	$	5,499	$	10,146

Net cash flows used in financing activities were $50.2 million for the year-to-date period ended September 27, 2023, including cash payments for stock repurchases of $35.4 million, payments of tax withholding on share-based compensation of $3.0 million and net long-term debt payments of $14.8 million, partially offset by net bank overdrafts of $2.9 million. Net cash flows provided by financing activities were $32.7 million for the year-to-date period ended September 28, 2022, which included net long-term debt borrowings of $95.0 million primarily for funding the Keke's acquisition, partially offset by cash payments for stock repurchases of $57.5 million and payments of tax withholding on share-based compensation of $4.8 million.

Our working capital deficit was $56.0 million at September 27, 2023 compared to $43.3 million at December 28, 2022, primarily due to a decrease in receivables and inventories related to our franchise equipment projects during the year-to-date period ended September 27, 2023. We are able to operate with a substantial working capital deficit because (1) restaurant operations and most food service operations are conducted primarily on a cash (and cash equivalent) basis with a low level of accounts receivable, (2) rapid turnover allows for a limited investment in inventories, and (3) accounts payable for food, beverages and supplies usually becomes due after the receipt of cash from the related sales.

Credit Facility

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

As of September 27, 2023, we had outstanding revolver loans of $248.1 million and outstanding letters of credit under the credit facility of $11.5 million. These balances resulted in unused commitments of $140.4 million as of September 27, 2023 under the credit facility.

As of September 27, 2023, borrowings under the credit facility bore interest at a rate of Adjusted Daily Simple SOFR plus 2.25% and the commitment fee, paid on the unused portion of the credit facility, was set to 0.35%.

Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 7.66% and 6.37% as of September 27, 2023 and December 28, 2022, respectively. Taking into consideration our interest rate swaps that are designated as cash flow hedges, the weighted-average interest rate of outstanding revolver loans was 5.28% and 5.31% as of September 27, 2023 and December 28, 2022, respectively.

Technology Transformation Initiatives

The Company has committed to investing approximately $4 million toward a new cloud-based restaurant technology platform in domestic franchise restaurants, which will lay the foundation for future technology initiatives to further enhance the guest experience. We currently expect the rollout to occur in 2024 and 2025.

Contractual Obligations

Our future contractual obligations relating to long-term debt and related interest obligations as of September 27, 2023 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	$	248,100	$	—	$	—	$	248,100	$	—
	Interest obligations (a)	37,457		3,243		25,474		8,740		—
	Total	$	285,557	$	3,243	$	25,474	$	256,840	$	—

(a)	Interest obligations represent payments related to our long-term debt outstanding at September 27, 2023. For long-term debt with variable rates, we have used the rate applicable at September 27, 2023 to project interest over the periods presented in the table above, taking into consideration the impact of the interest rate swaps that are designated as cash flow hedges for the applicable periods.

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

Critical Accounting Policies and Estimates

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

Implementation of New Accounting Standards

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We have exposure to interest rate risk related to certain instruments entered into for other than trading purposes. Specifically, as of September 27, 2023, borrowings under our credit facility bore interest at variable rates based on Adjusted Daily Simple SOFR plus 2.25% per annum.

We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt. A summary of our interest rate swaps as of September 27, 2023 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		$	4,937	2.34	%
October 1, 2015	March 29, 2018	March 31, 2026	$	50,000		$	2,851	2.37	%
February 15, 2018	March 31, 2020	December 31, 2033	$	31,000	(1)	$	19,536	3.09	%
Total			$	201,000		$	27,324

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

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

As of September 27, 2023, our swaps effectively increased our ratio of fixed rate debt from 4% of total debt to 82% of total debt. Based on the levels of borrowings under the credit facility at September 27, 2023, if interest rates changed by 100 basis points, our annual cash flow and income before taxes would change by $0.3 million. This computation is determined by considering the impact of hypothetical interest rates on the credit facility at September 27, 2023, taking into consideration the interest rate swaps that will be in effect during the next 12 months. However, the nature and amount of our borrowings may vary as a result of future business requirements, market conditions and other factors.

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

Item 4. Controls and Procedures

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

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

Other than as discussed above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during our fiscal quarter ended September 27, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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 27, 2023.


Period	Total Number of Shares Purchased	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Programs (2)	Dollar Value of Shares that May Yet be Purchased Under the Programs (2)
	(In thousands, except per share amounts)
June 29, 2023 - July 26, 2023	230	$	11.47	230	$	130,497
July 27, 2023 - August 23, 2023	475	10.29		475	$	125,598
August 24, 2023 - September 27, 2023	975	9.04		975	$	116,601
Total	1,680	$	9.73	1,680

(1) Average price paid per share excludes commissions and any excise taxes paid.

(2) On December 2, 2019, we announced that our Board of Directors approved a share repurchase program, authorizing us to repurchase up to an additional $250 million of our common stock (in addition to prior authorizations). Such repurchases may take place from time to time in the open market (including pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Exchange Act) or in privately negotiated transactions, subject to market and business conditions. During the quarter ended September 27, 2023, we purchased 1.7 million shares of our common stock for an aggregate consideration of $16.5 million pursuant to the share repurchase program.

Item 5. Other Information

Rule 10b5-1 Trading Plans

During the quarter ended September 27, 2023, none of the Company’s directors or officers informed the Company of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

Item 6. Exhibits

The following are included as exhibits to this report:


Exhibit No.						Description
10.1						Denny's Corporation Executive Severance Pay Plan, effective August 30, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Denny's Corporation filed with the Securities and Exchange Commission on September 1, 2023).

31.1						Certification of Kelli F. Valade, 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 Kelli F. Valade, 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)

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:

October 30, 2023

By:

/s/ Robert P. Verostek

Robert P. Verostek

Executive Vice President and
Chief Financial Officer

Date:

October 30, 2023

By:

/s/ Jay C. Gilmore

Jay C. Gilmore

Senior Vice President,
Chief Accounting Officer and
Corporate Controller

TABLE OF CONTENTS

Part I - Financial Information Item 1. Financial Statements Note 1. Introduction and Basis Of Presentation Note 2. Summary Of Significant Accounting Policies Note 3. Receivables Note 4. Goodwill and Intangible Assets Note 5. Other Current Liabilities Note 6. Fair Value Of Financial Instruments Note 7. Long-term Debt Note 8. Revenues Note 9. Operating (gains), Losses and Other Charges, Net Note 10. Share-based Compensation Note 11. Income Taxes Note 12. Net Income Per Share Note 13. Shareholders' Deficit Note 14. Commitments and Contingencies Note 15. Supplemental Cash Flow Information Note 16. Segment Information Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 5. Other Information Item 6. Exhibits

Exhibits

10.1 Denny's Corporation Executive Severance Pay Plan, effective August 30, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Denny's Corporation filed with the Securities and Exchange Commission on September 1, 2023). 31.1 Certification of Kelli F. Valade, 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 Kelli F. Valade, 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.

DENN 10-Q Quarter ended Sept. 27, 2023

Exhibits