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 23, 2020~~June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________

Commission File Number 0-18051

DENNY’S CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

13-3487402

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

203 East Main Street

Spartanburg,

South Carolina

29319-0001

(Address of principal executive offices)

(Zip Code)

(864) 597-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

$.01 Par Value, Common Stock

DENN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

ý☐

Accelerated Filer

☐ý

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ý

As of ~~October 22, 2020, 63,768,120~~July 29, 2021, 64,199,998 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Denny’s Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


		September 23, 2020		December 25, 2019			June 30, 2021		December 30, 2020
		(In thousands)							(In thousands)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	11,217	$	3,372	Cash and cash equivalents	$	10,882	$	3,892
Investments	Investments	2,266		3,649		Investments	2,069		2,272
Receivables, net	Receivables, net	20,637		27,488		Receivables, net	20,407		21,349
Inventories	Inventories	1,017		1,325		Inventories	1,280		1,181
Assets held for sale	Assets held for sale	3,206		1,925		Assets held for sale	1,621		1,125
Prepaid and other current assets	Prepaid and other current assets	18,838		14,974		Prepaid and other current assets	12,168		18,847
Total current assets	Total current assets	57,181		52,733		Total current assets	48,427		48,666
Property, net of accumulated depreciation of $147,510 and $147,445, respectively		89,466		97,626
Financing lease right-of-use assets, net of accumulated amortization of $9,484 and $8,468, respectively		10,284		11,720
Property, net of accumulated depreciation of $149,516 and $146,583, respectively						Property, net of accumulated depreciation of $149,516 and $146,583, respectively	82,490		86,154
Financing lease right-of-use assets, net of accumulated amortization of $10,684 and $9,907, respectively						Financing lease right-of-use assets, net of accumulated amortization of $10,684 and $9,907, respectively	9,437		9,830
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	145,302		158,550		Operating lease right-of-use assets, net	135,229		139,534
Goodwill	Goodwill	36,884		36,832		Goodwill	36,884		36,884
Intangible assets, net	Intangible assets, net	52,100		53,956		Intangible assets, net	50,892		51,559
Deferred financing costs, net	Deferred financing costs, net	2,119		1,727		Deferred financing costs, net	1,727		2,414
Deferred income taxes, net	Deferred income taxes, net	27,047		14,718		Deferred income taxes, net	19,854		23,210
Other noncurrent assets	Other noncurrent assets	30,414		32,525		Other noncurrent assets	33,407		32,698
Total assets	Total assets	$	450,797	$	460,387	Total assets	$	418,347	$	430,949
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Current finance lease liabilities	Current finance lease liabilities	$	1,963	$	1,674	Current finance lease liabilities	$	1,637	$	1,839
Current operating lease liabilities	Current operating lease liabilities	18,253		16,344		Current operating lease liabilities	16,348		16,856
Accounts payable	Accounts payable	10,898		20,256		Accounts payable	14,376		12,021
Other current liabilities	Other current liabilities	41,346		57,307		Other current liabilities	55,251		46,462
Total current liabilities	Total current liabilities	72,460		95,581		Total current liabilities	87,612		77,178
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Long-term debt	Long-term debt	230,000		240,000		Long-term debt	180,000		210,000
Noncurrent finance lease liabilities	Noncurrent finance lease liabilities	13,805		14,779		Noncurrent finance lease liabilities	13,265		13,530
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	142,110		152,750		Noncurrent operating lease liabilities	132,959		137,534
Liability for insurance claims, less current portion	Liability for insurance claims, less current portion	10,572		11,454		Liability for insurance claims, less current portion	9,602		10,309
Other noncurrent liabilities	Other noncurrent liabilities	120,221		83,887		Other noncurrent liabilities	94,332		112,844
Total long-term liabilities	Total long-term liabilities	516,708		502,870		Total long-term liabilities	430,158		484,217
Total liabilities	Total liabilities	589,168		598,451		Total liabilities	517,770		561,395
Shareholders' deficit	Shareholders' deficit					Shareholders' deficit
Common stock $0.01 par value; 135,000 shares authorized; September 23, 2020: 117,778 shares issued and 63,768 shares outstanding; December 25, 2019: 109,415 shares issued and 57,095 shares outstanding		$	1,178	$	1,094
Common stock $0.01 par value; 135,000 shares authorized; June 30, 2021: 64,200 shares issued and outstanding; December 30, 2020: 63,962 shares issued and outstanding						Common stock $0.01 par value; 135,000 shares authorized; June 30, 2021: 64,200 shares issued and outstanding; December 30, 2020: 63,962 shares issued and outstanding	$	642	$	640
Paid-in capital	Paid-in capital	672,502		603,980		Paid-in capital	129,176		123,833
Deficit	Deficit	(196,873)		(189,398)		Deficit	(172,161)		(194,514)
Accumulated other comprehensive loss, net of tax		(61,205)		(33,960)
Treasury stock, at cost, 54,010 and 52,320 shares, respectively		(553,973)		(519,780)
Accumulated other comprehensive loss, net						Accumulated other comprehensive loss, net	(57,080)		(60,405)
Total shareholders' deficit	Total shareholders' deficit	(138,371)		(138,064)		Total shareholders' deficit	(99,423)		(130,446)
Total liabilities and shareholders' deficit	Total liabilities and shareholders' deficit	$	450,797	$	460,387	Total liabilities and shareholders' deficit	$	418,347	$	430,949

See accompanying notes

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


		Quarter Ended						Three Quarters Ended							Quarter Ended				Two Quarters Ended
		September 23, 2020		September 25, 2019		September 23, 2020		September 25, 2019			June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
		(In thousands, except per share amounts)															(In thousands, except per share amounts)
Revenue:	Revenue:									Revenue:
Company restaurant sales	Company restaurant sales	$	27,849	$	63,582	$	85,268	$	257,574	Company restaurant sales	$	47,572	$	15,128	$	81,141	$	57,419
Franchise and license revenue	Franchise and license revenue	43,795		60,676		123,232		169,979		Franchise and license revenue	58,593		25,033		105,600		79,437
Total operating revenue	Total operating revenue	71,644		124,258		208,500		427,553		Total operating revenue	106,165		40,161		186,741		136,856
Costs of company restaurant sales, excluding depreciation and amortization:	Costs of company restaurant sales, excluding depreciation and amortization:									Costs of company restaurant sales, excluding depreciation and amortization:
Product costs	Product costs	7,106		15,603		21,541		62,871		Product costs	11,447		4,305		19,719		14,435
Payroll and benefits	Payroll and benefits	11,925		23,777		37,070		100,475		Payroll and benefits	16,970		8,039		29,935		25,145
Occupancy	Occupancy	2,638		4,301		8,529		15,583		Occupancy	2,844		2,728		5,694		5,891
Other operating expenses	Other operating expenses	5,701		10,625		15,954		39,320		Other operating expenses	6,552		4,534		12,629		10,253
Total costs of company restaurant sales	Total costs of company restaurant sales	27,370		54,306		83,094		218,249		Total costs of company restaurant sales	37,813		19,606		67,977		55,724
Costs of franchise and license revenue, excluding depreciation and amortization	Costs of franchise and license revenue, excluding depreciation and amortization	24,073		31,136		68,487		87,065		Costs of franchise and license revenue, excluding depreciation and amortization	28,735		15,244		52,493		44,414
General and administrative expenses	General and administrative expenses	13,694		16,395		34,589		53,659		General and administrative expenses	17,548		13,153		34,495		20,895
Depreciation and amortization	Depreciation and amortization	4,048		4,338		12,252		15,619		Depreciation and amortization	3,897		4,058		7,558		8,204
Operating (gains), losses and other charges, net	Operating (gains), losses and other charges, net	(781)		(50,091)		2,319		(85,459)		Operating (gains), losses and other charges, net	(113)		1,627		419		3,100
Total operating costs and expenses, net	Total operating costs and expenses, net	68,404		56,084		200,741		289,133		Total operating costs and expenses, net	87,880		53,688		162,942		132,337
Operating income		3,240		68,174		7,759		138,420
Operating income (loss)										Operating income (loss)	18,285		(13,527)		23,799		4,519
Interest expense, net	Interest expense, net	4,422		4,188		13,320		14,977		Interest expense, net	4,066		4,947		8,343		8,898
Other nonoperating expense (income), net	Other nonoperating expense (income), net	(8,477)		(415)		3,851		(2,111)		Other nonoperating expense (income), net	16,251		9,565		(13,797)		12,328
Income (loss) before income taxes	Income (loss) before income taxes	7,295		64,401		(9,412)		125,554		Income (loss) before income taxes	(2,032)		(28,039)		29,253		(16,707)
Provision for (benefit from) income taxes	Provision for (benefit from) income taxes	818		15,279		(1,937)		26,703		Provision for (benefit from) income taxes	(1,204)		(5,074)		6,900		(2,755)
Net income (loss)	Net income (loss)	$	6,477	$	49,122	$	(7,475)	$	98,851	Net income (loss)	$	(828)	$	(22,965)	$	22,353	$	(13,952)

Basic net income (loss) per share	Basic net income (loss) per share	$	0.10	$	0.83	$	(0.13)	$	1.64	Basic net income (loss) per share	$	(0.01)	$	(0.41)	$	0.34	$	(0.25)
Diluted net income (loss) per share	Diluted net income (loss) per share	$	0.10	$	0.80	$	(0.13)	$	1.58	Diluted net income (loss) per share	$	(0.01)	$	(0.41)	$	0.34	$	(0.25)

Basic weighted average shares outstanding	Basic weighted average shares outstanding	63,793		59,430		59,350		60,457		Basic weighted average shares outstanding	65,294		55,686		65,273		55,993
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	64,027		61,189		59,350		62,370		Diluted weighted average shares outstanding	65,294		55,686		65,789		55,993

See accompanying notes

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

Quarter Ended Three Quarters Ended
September 23, 2020 September 25, 2019 September 23, 2020 September 25, 2019
(In thousands)
Net income (loss) $ 6,477 $ 49,122 $ (7,475) $ 98,851
Other comprehensive income (loss), net of tax:
Minimum pension liability adjustment, net of tax of $5, $6, $17 and $17, respectively 17 16 50 48
Changes in the fair value of cash flow derivatives, net of tax of $151, $(5,251), $(12,416) and $(13,574), respectively 435 (15,067) (34,723) (37,838)
Reclassification of cash flow derivatives to interest expense, net of tax of $121, $21, $541 and $11, respectively 350 57 1,556 29
Reclassification of loss related to dedesignation of derivatives to other nonoperating expense (income), net of tax of $0, $0, $1,892 and $0, respectively 0 0 5,462 0
Amortization of unrealized losses related to dedesignated derivatives to interest expense, net of tax of $73, $0, $142 and $0, respectively 210 0 410 0
Other comprehensive income (loss) 1,012 (14,994) (27,245) (37,761)
Total comprehensive income (loss) $ 7,489 $ 34,128 $ (34,720) $ 61,090


	Quarter Ended				Two Quarters Ended
	June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
	(In thousands)
Net income (loss)	$	(828)	$	(22,965)	$	22,353	$	(13,952)
Other comprehensive income (loss), net of tax:
Minimum pension liability adjustment, net of tax of $11, $6, $21 and $12, respectively	29		16		59		33
Changes in the fair value of cash flow derivatives, net of tax of $(192), $(772), $571 and $(12,567), respectively	(561)		(2,230)		1,654		(35,158)
Reclassification of cash flow derivatives to interest expense, net of tax of $257, $334, $512 and $420, respectively	748		967		1,488		1,206
Reclassification of loss related to dedesignation of derivatives to other nonoperating expense (income), net of tax of $0, $1,892, $0 and $1,892, respectively	0		5,462		0		5,462
Amortization of unrealized losses related to dedesignated derivatives to interest expense, net of tax of $11, $69, $42 and $69, respectively	34		200		124		200
Other comprehensive income (loss)	250		4,415		3,325		(28,257)
Total comprehensive income (loss)	$	(578)	$	(18,550)	$	25,678	$	(42,209)

See accompanying notes

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Deficit

For the Quarter Ended ~~September 23,~~June 30, 2021 and June 24, 2020 ~~and September 25, 2019~~

(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 24, 2020 109,719 $ 1,097 (54,010) $ (553,973) $ 600,936 $ (203,350) $ (62,217) $ (217,507)
Net income — — — — — 6,477 — 6,477
Other comprehensive income — — — — — — 1,012 1,012
Issuance of common stock 8,000 80 — — 69,491 — — 69,571
Share-based compensation on equity classified awards, net of withholding tax — — — — 1,930 — — 1,930
Issuance of common stock for share-based compensation 22 — — — — — — —
Exercise of common stock options 37 1 — — 145 — — 146
Balance, September 23, 2020 117,778 $ 1,178 (54,010) $ (553,973) $ 672,502 $ (196,873) $ (61,205) $ (138,371)


	Common Stock			Treasury Stock			Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss, Net		Total Shareholders’ Deficit
	Shares	Amount		Shares	Amount
	(In thousands)
Balance, March 31, 2021	64,145	$	641	0	$	0	$	125,950	$	(171,333)	$	(57,330)	(102,072)

Net loss	—	—		—	—		—		(828)		—		(828)
Other comprehensive income	—	—		—	—		—		—		250		250

Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		3,227		—		—		3,227



Issuance of common stock for share-based compensation	55	1		—	—		(1)		—		—		0

Balance, June 30, 2021	64,200	$	642	0	$	0	$	129,176	$	(172,161)	$	(57,080)	$	(99,423)

Common Stock Treasury Stock Paid-in Capital Deficit Accumulated
Other
Comprehensive Loss, Net Total
Shareholders’
Deficit
Shares Amount Shares Amount
(In thousands)
Balance, June 26, 2019 109,291 $ 1,093 (49,484) $ (461,575) $ 601,902 $ (257,079) $ (26,913) $ (142,572)
Net income — — — — — 49,122 — 49,122
Other comprehensive loss — — — — — — (14,994) (14,994)
Share-based compensation on equity classified awards, net of withholding tax — — — — 2,089 — — 2,089
Purchase of treasury stock — — (589) (12,807) — — — (12,807)
Issuance of common stock for share-based compensation 3 — — — — — — —
Exercise of common stock options 119 1 — — 415 — — 416
Balance, September 25, 2019 109,413 $ 1,094 (50,073) $ (474,382) $ 604,406 $ (207,957) $ (41,907) $ (118,746)


	Common Stock			Treasury Stock			Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss, Net		Total Shareholders’ Deficit
	Shares	Amount		Shares	Amount
	(In thousands)
Balance, March 25, 2020	109,677	$	1,097	(54,010)	$	(553,973)	$	599,401	$	(180,385)	$	(66,632)	$	(200,492)

Net loss	—	—		—	—		—		(22,965)		—		(22,965)
Other comprehensive income	—	—		—	—		—		—		4,415		4,415
Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		1,469		—		—		1,469



Issuance of common stock for share-based compensation	25	—		—	—		—		—		—		—
Exercise of common stock options	17	—		—	—		66		—		—		66
Balance, June 24, 2020	109,719	$	1,097	(54,010)	$	(553,973)	$	600,936	$	(203,350)	$	(62,217)	$	(217,507)

See accompanying notes

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Deficit

For the ~~Three~~Two Quarters Ended ~~September 23,~~June 30, 2021 and June 24, 2020 ~~and September 25, 2019~~

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

Common Stock Treasury Stock Paid-in Capital Deficit Accumulated
Other
Comprehensive Loss, Net Total
Shareholders’
Deficit
Shares Amount Shares Amount
(In thousands)
Balance, December 26, 2018 108,585 $ 1,086 (47,052) $ (416,815) $ 592,944 $ (306,414) $ (4,146) $ (133,345)
Cumulative effect adjustment — — — — — (394) — (394)
Net income — — — — — 98,851 — 98,851
Other comprehensive loss — — — — — — (37,761) (37,761)
Share-based compensation on equity classified awards, net of withholding tax — — — — 3,741 — — 3,741
Purchase of treasury stock — — (2,632) (50,804) — — — (50,804)
Equity forward contract settlement — — (389) (6,763) 6,763 — — —
Issuance of common stock for share-based compensation 468 5 — — (5) — — —
Exercise of common stock options 360 3 — — 963 — — 966
Balance, September 25, 2019 109,413 $ 1,094 (50,073) $ (474,382) $ 604,406 $ (207,957) $ (41,907) $ (118,746)


	Common Stock			Treasury Stock			Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss, Net		Total Shareholders’ Deficit
	Shares	Amount		Shares	Amount
	(In thousands)
Balance, December 30, 2020	63,962	$	640	0	$	0	$	123,833	$	(194,514)	$	(60,405)	$	(130,446)

Net income	—	—		—	—		—		22,353		—		22,353
Other comprehensive income	—	—		—	—		—		—		3,325		3,325

Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		5,229		—		—		5,229



Issuance of common stock for share-based compensation	208	2		—	—		(2)		—		—		0
Exercise of common stock options	30	—		—	—		116		—		—		116
Balance, June 30, 2021	64,200	$	642	0	$	0	$	129,176	$	(172,161)	$	(57,080)	$	(99,423)


	Common Stock			Treasury Stock			Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss, Net		Total Shareholders’ Deficit
	Shares	Amount		Shares	Amount
	(In thousands)
Balance, December 25, 2019	109,415	$	1,094	(52,320)	$	(519,780)	$	603,980	$	(189,398)	$	(33,960)	$	(138,064)

Net loss	—	—		—	—		—		(13,952)		—		(13,952)
Other comprehensive loss	—	—		—	—		—		—		(28,257)		(28,257)
Share-based compensation on equity classified awards, net of withholding tax	—	—		—	—		(3,107)		—		—		(3,107)
Purchase of treasury stock	—	—		(1,690)	(34,193)		—		—		—		(34,193)


Issuance of common stock for share-based compensation	287	3		—	—		(3)		—		—		0
Exercise of common stock options	17	—		—	—		66		—		—		66
Balance, June 24, 2020	109,719	$	1,097	(54,010)	$	(553,973)	$	600,936	$	(203,350)	$	(62,217)	$	(217,507)

See accompanying notes

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Three Quarters Ended							Two Quarters Ended
		September 23, 2020		September 25, 2019			June 30, 2021		June 24, 2020
		(In thousands)							(In thousands)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	(7,475)	$	98,851	Net income (loss)	$	22,353	$	(13,952)
Adjustments to reconcile net income (loss) to cash flows provided by (used in) operating activities:	Adjustments to reconcile net income (loss) to cash flows provided by (used in) operating activities:					Adjustments to reconcile net income (loss) to cash flows provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	12,252		15,619		Depreciation and amortization	7,558		8,204
Operating (gains), losses and other charges, net	Operating (gains), losses and other charges, net	2,319		(85,459)		Operating (gains), losses and other charges, net	419		3,100
Loss on interest rate swap derivatives		4,185		0
(Gains) losses and amortization on interest rate swap derivatives, net						(Gains) losses and amortization on interest rate swap derivatives, net	(12,506)		11,466
Amortization of deferred financing costs	Amortization of deferred financing costs	591		456		Amortization of deferred financing costs	688		340
Gains on investments		(117)		(179)
Losses (gains) on termination of leases		43		(157)
Losses (gains) on investments						Losses (gains) on investments	3		(91)
(Gains) losses on termination of leases						(Gains) losses on termination of leases	(72)		53
Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	(2,505)		9,594		Deferred income tax expense (benefit)	2,211		(3,705)
Share-based compensation expense		1,972		7,142
Share-based compensation expense (benefit)						Share-based compensation expense (benefit)	6,860		(26)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables	Receivables	7,465		8,095		Receivables	757		9,342
Inventories	Inventories	265		1,525		Inventories	(98)		175
Other current assets		(3,865)		(168)
Prepaids and other current assets						Prepaids and other current assets	6,677		(2,593)
Other noncurrent assets	Other noncurrent assets	474		(3,081)		Other noncurrent assets	(1,317)		106
Operating lease assets and liabilities	Operating lease assets and liabilities	1,231		(577)		Operating lease assets and liabilities	(821)		1,769
Accounts payable	Accounts payable	(8,540)		(9,411)		Accounts payable	5,620		(537)
Accrued payroll	Accrued payroll	(8,739)		(6,224)		Accrued payroll	1,992		(11,519)
Accrued taxes	Accrued taxes	971		(524)		Accrued taxes	434		(712)
Other accrued liabilities	Other accrued liabilities	(6,512)		(5,544)		Other accrued liabilities	4,649		(6,551)
Other noncurrent liabilities	Other noncurrent liabilities	(5,625)		2,068		Other noncurrent liabilities	(2,036)		(2,827)
Net cash flows provided by (used in) operating activities	Net cash flows provided by (used in) operating activities	(11,610)		32,026		Net cash flows provided by (used in) operating activities	43,371		(7,958)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(5,476)		(12,646)		Capital expenditures	(3,108)		(4,476)
Acquisitions of real estate		0		(9,456)
Deposits on acquisitions of real estate		0		(1,538)

Proceeds from sales of restaurants, real estate and other assets	Proceeds from sales of restaurants, real estate and other assets	4,536		118,370		Proceeds from sales of restaurants, real estate and other assets	1,612		2,208
Investment purchases	Investment purchases	(1,400)		(1,300)		Investment purchases	0		(1,400)
Proceeds from sale of investments	Proceeds from sale of investments	2,900		0		Proceeds from sale of investments	200		2,900
Collections on notes receivable	Collections on notes receivable	1,385		3,027		Collections on notes receivable	383		918
Issuance of notes receivable	Issuance of notes receivable	(670)		(822)		Issuance of notes receivable	(94)		(484)
Net cash flows provided by investing activities		1,275		95,635
Net cash flows used in investing activities						Net cash flows used in investing activities	(1,007)		(334)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Revolver borrowings	Revolver borrowings	140,500		102,500		Revolver borrowings	9,500		130,000
Revolver payments	Revolver payments	(150,500)		(176,000)		Revolver payments	(39,500)		(63,000)
Long-term debt payments	Long-term debt payments	(1,115)		(2,044)		Long-term debt payments	(980)		(594)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	212		966		Proceeds from exercise of stock options	116		66
Tax withholding on share-based payments	Tax withholding on share-based payments	(3,049)		(3,206)		Tax withholding on share-based payments	(1,377)		(3,036)
Deferred financing costs	Deferred financing costs	(982)		0		Deferred financing costs	(8)		(982)
Purchase of treasury stock	Purchase of treasury stock	(36,008)		(50,649)		Purchase of treasury stock	0		(36,008)
Proceeds from issuance of common stock		69,571		0

Net bank overdrafts	Net bank overdrafts	(449)		(2,234)		Net bank overdrafts	(3,125)		(449)
Net cash flows provided by (used in) financing activities	Net cash flows provided by (used in) financing activities	18,180		(130,667)		Net cash flows provided by (used in) financing activities	(35,374)		25,997
Increase (decrease) in cash and cash equivalents		7,845		(3,006)
Increase in cash and cash equivalents						Increase in cash and cash equivalents	6,990		17,705
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	3,372		5,026		Cash and cash equivalents at beginning of period	3,892		3,372
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	11,217	$	2,020	Cash and cash equivalents at end of period	$	10,882	$	21,077

See accompanying notes

Denny’s Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Introduction and Basis of Presentation

Denny’s Corporation, or Denny’s or the Company, is one of America’s largest full-service restaurant chains based on number of restaurants. At ~~September 23, 2020,~~June 30, 2021, the Denny's brand consisted of ~~1,664~~1,645 restaurants, ~~1,598~~1,580 of which were franchised/licensed restaurants and 6665 of which were company operated.

The global crisis resulting from the spread of coronavirus ("COVID-19") has had a substantial impact on our restaurant operations ~~for~~starting in the ~~three quarters~~quarter ended ~~September 23,~~March 25, 2020 ~~which is expected to continue~~ with the timing of a recovery uncertain. During the three quarters ended September 23, 2020, many of our company and franchised and licensed restaurants were temporarily closed and most of the restaurants that remained open had limited operations. This has continuedcontinuing impacts into the ~~fourth~~current quarter ~~of 2020. Our operating results substantially depend upon~~ended June 30, 2021. While we have seen improvements compared to earlier periods during the ~~sales volumes, restaurant profitability, and financial stability of our company and franchised and licensed restaurants.~~

WeCOVID-19 pandemic, we cannot currently estimate the duration or future ~~negative~~ financial impact of the COVID-19 pandemic on our ~~business; however,~~business. However, we expect that the COVID-19 pandemic will continue to impact our results of operations for the balance of 2020. Ongoing material adverse effects of the COVID-19 pandemic for an extended period could negatively affect our business, results of operations, liquidity and financial condition and could impact our impairment assessments of accounts receivable, intangible assets, long-lived assets and goodwill.2021.

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

These interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the fiscal year ended December ~~25, 2019~~30, 2020 which are contained in our audited Annual Report on Form 10-K for the fiscal year ended December ~~25, 2019. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.~~30, 2020. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire fiscal year ending December ~~30, 2020.~~29, 2021. 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 ~~June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13,~~ ~~Financial Instruments—Credit Losses~~ ~~(Topic 326):~~ ~~Measurement of Credit Losses on Financial Instruments~~. The new guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform financial statement users of credit loss estimates. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 (our fiscal 2020). The adoption of this guidance on December 26, 2019 did not have a material impact on our condensed consolidated financial statements.

~~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~~. The new 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. ASU 2020-04 is effective for a limited time, from March 12, 2020 through December 31, 2022. The Company adopted this ASU on March 12, 2020. The adoption of ASU 2020-04 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In April 2020, the FASB staff issued interpretive guidance that indicated it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under ASU 2016-02, ~~Leases~~ ~~(Topic 842):~~ ~~Targeted Improvements~~, as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842 to those contracts. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

We have elected to apply this interpretive guidance to the rent relief we have secured, and have assumed that enforceable rights and obligations for those concessions exist in the lease contract. As such, starting in April 2020, we began recognizing abatements or deferrals in rents received from landlords as reductions in variable lease payments. This election will continue while these abatement or deferrals are in effect.

~~Accounting Standards to be Adopted~~

In December 2019, the FASB issued ASU 2019-12, "Income Taxes~~Income Taxes~~ (Topic 740): Simplifying the Accounting for Income ~~Taxes~~Taxes", which modifies Topic 740 to simplify the accounting for income taxes. ASU 2019-12 is effective for financial statements issued for annual periods beginning after December 15, 2020, and for the interim periods therein. The adoption of ASU 2019-12 isdid not ~~expected to~~ have a significant impact on the Company’s consolidated financial position or results of operations.

Accounting Standards to be Adopted

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” which clarified the guidance issued in March 2020, ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. 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 guidance is effective through December 31, 2022. The Company is currently evaluating the impact that the adoption of this new guidance will have on our consolidated financial position or results of operations and has not adopted any of the transition relief available under the new guidance as of June 30, 2021.

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 23, 2020		December 25, 2019			June 30, 2021		December 30, 2020
		(In thousands)							(In thousands)
Receivables, net:	Receivables, net:					Receivables, net:
Trade accounts receivable from franchisees	Trade accounts receivable from franchisees	$	17,306	$	14,551	Trade accounts receivable from franchisees	$	15,580	$	15,535
Financing receivables from franchisees	Financing receivables from franchisees	1,283		2,230		Financing receivables from franchisees	1,082		2,104

Vendor receivables	Vendor receivables	894		3,260		Vendor receivables	2,023		2,199
Credit card receivables	Credit card receivables	587		6,806		Credit card receivables	684		542
Other	Other	2,266		915		Other	2,062		2,668
Allowance for doubtful accounts	Allowance for doubtful accounts	(1,699)		(274)		Allowance for doubtful accounts	(1,024)		(1,699)
Total receivables, net	Total receivables, net	$	20,637	$	27,488	Total receivables, net	$	20,407	$	21,349

Other noncurrent assets:	Other noncurrent assets:					Other noncurrent assets:
Financing receivables from franchisees	Financing receivables from franchisees	$	188	$	364	Financing receivables from franchisees	$	398	$	502

We recorded $0.5 million and $1.4 million of bad debt expense during the quarter and three quarters ended September 23, 2020, respectively, based on actual and expected losses on franchise-related receivables, primarily as a result of uncertainties related to the impacts of the COVID-19 pandemic.

Note 4. ~~Goodwill and Other~~ Intangible Assets


	~~(In thousands)~~
~~Balance, December 25, 2019~~	$	~~36,832~~

~~Reclassification from assets held for sale~~	52
~~Balance, September 23, 2020~~	$	~~36,884~~

~~Other intangible~~Intangible assets consisted of the following:


		September 23, 2020						December 25, 2019							June 30, 2021				December 30, 2020
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
		(In thousands)															(In thousands)
Intangible assets with indefinite lives:	Intangible assets with indefinite lives:									Intangible assets with indefinite lives:
Trade names	Trade names	$	44,087	$	—	$	44,087	$	—	Trade names	$	44,087	$	—	$	44,087	$	—
Liquor licenses	Liquor licenses	120		—		120		—		Liquor licenses	120		—		120		—
Intangible assets with definite lives:	Intangible assets with definite lives:									Intangible assets with definite lives:
Reacquired franchise rights	Reacquired franchise rights	15,064		7,171		15,516		5,767		Reacquired franchise rights	12,218		5,533		12,218		4,866
Intangible assets, net	Intangible assets, net	$	59,271	$	7,171	$	59,723	$	5,767	Intangible assets, net	$	56,425	$	5,533	$	56,425	$	4,866

Due to the impact of the COVID-19 pandemic to the global economy, including but not limited to the volatility of the Company's stock price as well as that of its competitors, the negative impact on sales at company and franchised and licensed restaurants and the challenging environment for the restaurant industry generally, the Company determined that there were indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the three quarters ended September 23, 2020. As such, the Company performed an impairment assessment for both goodwill and indefinite-lived intangible assets and concluded that the fair value of these assets substantially exceeded their carrying values. However, we recorded less than $0.1 million and approximately $0.1 million of impairment related to reacquired franchise rights during the quarter and three quarters ended September 23, 2020, respectively. See Note 9.

Note 5. Other Current Liabilities

Other current liabilities consisted of the following:

September 23, 2020 December 25, 2019
(In thousands)
Accrued payroll $ 11,116 $ 19,689
Current portion of liability for insurance claims 5,488 6,515
Accrued taxes 6,595 5,624
Accrued advertising 3,348 6,753
Gift cards 4,758 6,469
Other 10,041 12,257
Other current liabilities $ 41,346 $ 57,307


	June 30, 2021		December 30, 2020
	(In thousands)
Accrued payroll	$	19,452	$	17,076
Current portion of liability for insurance claims	4,424		4,667
Accrued taxes	5,283		4,850
Accrued advertising	11,570		4,318
Gift cards	5,573		6,127
Other	8,949		9,424
Other current liabilities	$	55,251	$	46,462

1110

Note 6. Fair Value of Financial Instruments

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


		Total		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(In thousands)															(In thousands)
Fair value measurements as of September 23, 2020:
Fair value measurements as of June 30, 2021:										Fair value measurements as of June 30, 2021:
Deferred compensation plan investments ⁽¹⁾	Deferred compensation plan investments ⁽¹⁾	$	11,958	$	11,958	$	0	$	0	Deferred compensation plan investments (1)	$	14,049	$	14,049	$	0	$	0
Interest rate swaps ⁽²⁾	Interest rate swaps ⁽²⁾	(85,054)		0		(85,054)		0		Interest rate swaps (2)	(57,738)		0		(57,738)		0
Investments ⁽³⁾	Investments ⁽³⁾	2,266		0		2,266		0		Investments (3)	2,069		0		2,069		0
Total	Total	$	(70,830)	$	11,958	$	(82,788)	$	0	Total	$	(41,620)	$	14,049	$	(55,669)	$	0

Fair value measurements as of December 25, 2019:
Fair value measurements as of December 30, 2020:										Fair value measurements as of December 30, 2020:
Deferred compensation plan investments ⁽¹⁾	Deferred compensation plan investments ⁽¹⁾	$	13,517	$	13,517	$	0	$	0	Deferred compensation plan investments (1)	$	13,627	$	13,627	$	0	$	0
Interest rate swaps ⁽²⁾	Interest rate swaps ⁽²⁾	(44,670)		0		(44,670)		0		Interest rate swaps (2)	(76,445)		0		(76,445)		0
Investments ⁽³⁾	Investments ⁽³⁾	3,649		0		3,649		—		Investments (3)	2,272		0		2,272		0
Total	Total	$	(27,504)	$	13,517	$	(41,021)	$	0	Total	$	(60,546)	$	13,627	$	(74,173)	$	0

(1) The fair values of our deferred compensation plan investments are based on the closing market prices of the elected investments.

(2) The fair values of our interest rate swaps are based upon Level 2 inputs, which include valuation ~~models as reported by our counterparties.~~models. The key inputs for the valuation models are quoted market prices, interest rates and forward yield curves. See Note 7 for details on the interest rate swaps.

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

~~Those assets and liabilities measured at fair value on a nonrecurring basis are summarized below:~~

Significant Unobservable Inputs
(Level 3) Impairment Charges
(In thousands)
Fair value measurements for the three quarters ended September 23, 2020:
Assets held and used ⁽¹⁾
$ 2,575 $ 2,519

~~(1)~~During the first and third quarters of 2020, 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 and reacquired franchise rights. During the quarter and three quarters ended September 23, 2020, we recognized impairment charges of $0.3 million and $2.5 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 outstanding senior secured revolver ~~loans are~~is carried at historical cost, which approximates fair value. The fair value of our senior secured revolver approximates its carrying value since it is a variable rate facility (Level 2).

Note 7. Long-Term Debt

Denny's and certain of its subsidiaries have a credit facility, as amended, consisting of a five-year ~~$400~~$375 million senior secured revolver (with a $30 million letter of credit sublimit)~~. The credit facility includes an accordion feature that would allow us~~ which was reduced to ~~increase the size of the revolver to $450~~$350 million ~~subject to approval.~~on July 1, 2021. As of ~~September 23, 2020,~~June 30, 2021, we had outstanding revolver loans of ~~$230.0~~$180.0 million and outstanding letters of credit under the credit facility of ~~$17.3~~$15.7 million. These balances resulted in availability of ~~$152.7~~$179.3 million as of June 30, 2021 under the credit facility prior to considering the liquidity covenant in our credit facility. Factoring in the liquidity covenant, our availability was ~~$92.7 million.~~$120.2 million as of June 30, 2021. The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit facility is guaranteed by Denny's and its material subsidiaries and is secured by assets of Denny's and its subsidiaries, including the stock of its subsidiaries (other than our insurance captive subsidiary).

~~On May 13, 2020, we entered into an amendment (the "Second Amendment") to our credit agreement.~~ As ~~a result~~ of ~~the Second Amendment, beginning May 13, 2020 until the date of delivery of our financial statements for the fiscal quarter ending~~ June 30, 2021, borrowings under the credit facility bore interest at a rate of ~~the amended credit agreement was increased to~~ LIBOR plus 3.00% and the commitment fee, ~~which is~~ paid on the unused portion of the credit facility, was ~~increased~~set to 0.40%. ~~During this period, we will also have supplemental monthly reporting obligations to our lenders and will be~~The maturity date for the credit facility is October 26, 2022.

The Company is prohibited from paying dividends and making stock repurchases and other general ~~investments. Additionally,~~investments through the delivery of its fiscal third quarter 2021 results. Limitations on capital expenditures ~~will be restricted to $10~~of $12 million are in effect for the ~~aggregate from~~period of May 13, 2020 through September 29, 2021. As of June 30, 2021, approximately $6.4 million of the ~~fiscal quarter ending March 31, 2021.~~$12 million has been utilized.

~~The Second Amendment temporarily waives certain financial covenants.~~ The consolidated fixed charge coverage ratio ~~is waived until the fiscal quarter ending March 31, 2021, at which point the~~ covenant ~~level will revert to~~was a minimum of ~~1.50x.~~1.00x for the quarter ended June 30, 2021, adjusting to 1.25x for the quarter ending September 29, 2021, and 1.50x for the quarter ending December 29, 2021 and thereafter. The consolidated leverage ratio covenant ~~is waived until the fiscal quarter ending March 31,~~was a maximum of 5.25x as of June 30, 2021, ~~at which point the covenant level will increase from 4.00x to 4.50x,~~ stepping down to ~~4.25x in the second quarter~~4.75x as of September 29, 2021, and 4.00x ~~in the third fiscal quarter~~as of December 29, 2021 and thereafter. In addition, the ~~Second Amendment adds~~Company is subject to a monthly minimum liquidity covenant, defined as the sum of unrestricted cash and revolver availability, ~~ranging from $60 million to~~of $70 million, ~~commencing on May 13, 2020 to May 26,~~until the date of delivery of the

financial statements for the fiscal quarter ending September 29, 2021. We were in compliance with all financial covenants as of ~~September 23, 2020.~~June 30, 2021.

Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was ~~3.16%~~3.11% and ~~3.47%~~3.15% as of ~~September 23, 2020~~June 30, 2021 and December ~~25, 2019,~~30, 2020, respectively. Taking into consideration our interest rate swaps that are designated as cash flow hedges, the weighted-average interest rate of outstanding revolver loans was ~~4.85%~~5.31% and ~~3.99%~~5.01% as of ~~September 23, 2020~~June 30, 2021 and December ~~25, 2019,~~30, 2020, respectively.

Interest Rate Hedges

We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt. We initially designated the interest rate swaps as cash flow hedges of our exposure to variability in future cash flows attributable to variable interest payments due on forecasted notional amounts. A summary of our interest rate swaps as of ~~September 23, 2020~~June 30, 2021 is as follows:

Trade Date Effective Date Maturity Date Notional Amount Fixed Rate
(In thousands)
Swaps designated as cash flow hedges
March 20, 2015 March 29, 2018 March 31, 2025 $ 120,000 2.44 %
October 1, 2015 March 29, 2018 March 31, 2026 50,000 2.46 %
Dedesignated swaps
February 15, 2018 March 31, 2020 December 31, 2033 80,000 (1) 3.19 %


Trade Date	Effective Date	Maturity Date	Notional Amount			Fair Value		Fixed Rate
			(In thousands)
Swaps designated as cash flow hedges
March 20, 2015	March 29, 2018	March 31, 2025	$	120,000		$	7,921	2.44	%
October 1, 2015	March 29, 2018	March 31, 2026	$	50,000		$	3,783	2.46	%
Dedesignated swaps
February 15, 2018	March 31, 2020	December 31, 2033	$	100,000	(1)	$	46,034	3.19	%
Total			$	270,000		$	57,738

(1) The notional amounts of the swaps entered into on February 15, 2018 increase annually ~~beginning September 30, 2020~~ until they reach the maximum notional amount of $425.0 million on September 28, 2029.

Swaps Designated as Cash Flow Hedges

To the extent the swaps are highly effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swaps are not included in the Consolidated Statements of Operations but are reported as a component of ~~accumulated~~ other comprehensive ~~loss, net.~~income (loss). The interest rate swaps entered into in 2015 are designated as cash flow hedges with unrealized gain and losses recorded as a component of accumulated other comprehensive loss, net.

As of ~~September 23, 2020,~~June 30, 2021, the fair value of swaps designated as cash flow hedges was ~~$17.2~~a liability of $11.7 million and was recorded as a component of other noncurrent liabilities with an offsetting amount (before taxes) recorded as a component of accumulated other comprehensive ~~income,~~loss, net in our Condensed Consolidated Balance Sheets. See Note 13 for amounts recorded in accumulated other comprehensive loss related to interest rate swaps. We expect to reclassify approximately ~~$3.9~~$4.0 million from accumulated other comprehensive loss, net to interest expense, net in our Consolidated Statements of Operations related to swaps designated as cash flow hedges during the next ~~twelve~~12 months.

Dedesignated Interest Rate Hedges

During the ~~quarter~~year ended ~~June 24,~~December 30, 2020, we determined that a portion of the underlying cash flows related to our hedging relationship entered into in 2018 (“2018 Swaps”) were no longer probable of occurring over the term of the interest rate ~~swaps as a result of the ongoing impacts of the COVID-19 pandemic and using proceeds from our share offering described in Note 13 to repay a portion of our long-term debt.~~swaps. Accordingly, ~~during the quarter ended June 24, 2020,~~ we dedesignated the cash flow relationship and discontinued hedge accounting treatment for the 2018 Swaps. As a result, we reclassified ~~approximately $7.4 million~~a portion of losses from accumulated other comprehensive loss, net to other nonoperating expense (income), net in our Consolidated Statements of Operations ~~for~~and began amortizing the ~~three quarters ended September 23, 2020 related to the portion of the forecasted transaction no longer considered probable of occurring. The~~ remaining amounts of unrealized losses related to the 2018 Swaps ~~are included in~~from accumulated other comprehensive loss, net ~~and are amortized~~ into ~~the~~our Consolidated Statements of Operations as a component of interest expense, net over the remaining term of the 2018 Swaps. For the quarter and ~~three~~two quarters ended ~~September 23, 2020,~~June 30, 2021, we reclassified unrealized losses of approximately ~~$0.3~~less than $0.1 million and ~~$0.6~~$0.2 million, respectively, to interest expense, net related to the 2018 Swaps. At ~~September 23, 2020,~~June 30, 2021, approximately ~~$64.6~~$64.2 million (before taxes) of unrealized losses remained in accumulated other comprehensive loss, net. We expect to amortize less than $0.1 million from accumulated other comprehensive loss, net to interest expense, net in our Consolidated Statements of Operations related to dedesignated interest rate swaps during the next 12 months.

As a result of the dedesignated cash flow relationship related to the 2018 Swaps, changes in the fair value of the 2018 Swaps are recorded as a component of other nonoperating expense (income), net in our Consolidated Statements of Operations. For the quarter and ~~three~~two quarters ended ~~September 23, 2020,~~June 30, 2021, we recorded ~~income~~approximately $17.2 million of ~~approximately $7.8~~expense and $12.7 million ~~and $3.7 million,~~of income, respectively, as a component of nonoperating expense (income) related to the 2018 Swaps resulting from changes in fair value.

As of ~~September 23, 2020,~~June 30, 2021, the fair value of the dedesignated interest rate swaps was ~~$67.8~~a liability of $46.0 million and was recorded as a component of other noncurrent liabilities in our Condensed Consolidated Balance Sheets. We expect to amortize approximately $0.4 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 twelve months.

Note 8. Revenues

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

Quarter Ended Three Quarters Ended
September 23, 2020 September 25, 2019 September 23, 2020 September 25, 2019
(In thousands)
Company restaurant sales $ 27,849 $ 63,582 $ 85,268 $ 257,574
Franchise and license revenue:
Royalties 17,896 27,830 48,462 79,742
Advertising revenue 13,927 20,756 38,685 59,582
Initial and other fees 1,890 1,356 4,933 4,250
Occupancy revenue 10,082 10,734 31,152 26,405
Franchise and license revenue 43,795 60,676 123,232 169,979
Total operating revenue $ 71,644 $ 124,258 $ 208,500 $ 427,553


	Quarter Ended				Two Quarters Ended
	June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
	(In thousands)
Company restaurant sales	$	47,572	$	15,128	$	81,141	$	57,419
Franchise and license revenue:
Royalties	27,117		6,719		47,961		30,566
Advertising revenue	18,600		7,232		32,711		24,758
Initial and other fees	2,066		1,346		3,904		3,043
Occupancy revenue	10,810		9,736		21,024		21,070
Franchise and license revenue	58,593		25,033		105,600		79,437
Total operating revenue	$	106,165	$	40,161	$	186,741	$	136,856

Franchise occupancy revenue consisted of the following:

Quarter Ended Three Quarters Ended
September 23, 2020 September 25, 2019 September 23, 2020 September 25, 2019
(In thousands)
Operating lease revenue $ 8,277 $ 7,964 $ 24,959 $ 19,235
Variable lease revenue 1,805 2,770 6,193 7,170
Total occupancy revenue $ 10,082 $ 10,734 $ 31,152 $ 26,405


	Quarter Ended				Two Quarters Ended
	June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
	(In thousands)
Operating lease revenue	$	7,668	$	8,060	$	15,581	$	16,682
Variable lease revenue	3,142		1,676		5,443		4,388
Total occupancy revenue	$	10,810	$	9,736	$	21,024	$	21,070

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

Deferred franchise revenue consists primarily of the unamortized portion of initial franchise fees that are currently being amortized into revenue and amounts related to development agreements and unopened restaurants that we will begin amortizing into revenue when the related restaurants are opened. ~~Initial franchise fees are amortized over the term of the related franchise agreement, generally 10-20 years.~~ 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 ~~25, 2019~~30, 2020	$	~~23,256~~20,806
Fees received from franchisees	~~535~~303
Revenue recognized ⁽¹⁾	~~(2,474)~~(1,175)
Balance, ~~September 23, 2020~~June 30, 2021	~~21,317~~19,934
Less current portion included in other current liabilities	~~2,112~~1,946
Deferred franchise revenue included in other noncurrent liabilities	$	~~19,205~~17,988

(1) Of this amount ~~$2.4~~$1.2 million was included in the deferred franchise revenue balance as of December ~~25, 2019.~~30, 2020.

~~Gift~~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 23, 2020~~June 30, 2021 and December ~~25, 2019~~30, 2020 was ~~$4.8~~$5.6 million and ~~$6.5~~$6.1 million, respectively. During the ~~three~~two quarters ended ~~September 23, 2020,~~June 30, 2021, we recognized revenue of ~~$0.3~~$0.2 million from gift card redemptions at company restaurants.

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

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


		Quarter Ended						Three Quarters Ended							Quarter Ended				Two Quarters Ended
		September 23, 2020		September 25, 2019		September 23, 2020		September 25, 2019			June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
		(In thousands)															(In thousands)
Gains on sales of assets and other, net		$	(1,202)	$	(51,183)	$	(2,260)	$	(87,497)
(Gains) losses on sales of assets and other, net										(Gains) losses on sales of assets and other, net	$	(65)	$	12	$	(1,007)	$	(1,058)
Restructuring charges and exit costs	Restructuring charges and exit costs	83		1,092		2,060		2,038		Restructuring charges and exit costs	(48)		1,615		1,426		1,977
Impairment charges	Impairment charges	338		0		2,519		0		Impairment charges	0		0		0		2,181
Operating (gains), losses and other charges, net	Operating (gains), losses and other charges, net	$	(781)	$	(50,091)	$	2,319	$	(85,459)	Operating (gains), losses and other charges, net	$	(113)	$	1,627	$	419	$	3,100

~~Gains~~During the two quarters ended June 30, 2021, gains on sales of assets and other, net were primarily related to the sale of 3 parcels of real estate during the quarter and 5 parcels of real estate during the three quarters ended September 23, 2020. During the quarter ended September 25, 2019, gains on sale of assets and other, net included $50.4 million in gains on the sale of 56 company restaurants and $1.3 million in gains on the sales of 2 parcels1 parcel of real estate. During the ~~three~~two quarters ended ~~September 25, 2019, gains~~June 24, 2020, (gains) losses on sales of assets and other, net ~~included $76.8 million in gains on the sales of 96 company restaurants and $11.9 million on~~were primarily related to the sale of 62 real estate parcels.

As of June 30, 2021, we had recorded assets held for sale consisting of property at their carrying amount of $1.6 million related to 2 parcels of real estate.

As of ~~September 23,~~December 30, 2020, we had recorded assets held for sale at their carrying amount of ~~$3.2~~$1.1 million ~~(consists~~(consisting of property of ~~$2.5~~$1.0 million and other assets of $0.7 million) related to 7 parcels of real estate. As of December 25, 2019, we had recorded assets held for sale at their carrying amount of $1.9 million (comprised of property of $1.6 million, other assets of $0.2 million and goodwill of $0.1 million) related to ~~4 company restaurants and~~ 2 ~~pieces~~parcels of real estate. During the three quarters ended September 23, 2020, 5 pieces of real estate were sold and the 4 company restaurants were reclassified out of assets held for sale, as they were no longer expected to be sold in the next 12 months.

Restructuring charges and exit costs consisted of the following:

Quarter Ended Three Quarters Ended
September 23, 2020 September 25, 2019 September 23, 2020 September 25, 2019
(In thousands)
Exit costs $ 75 $ 20 $ 169 $ 194
Severance and other restructuring charges 8 1,072 1,891 1,844
Total restructuring charges and exit costs $ 83 $ 1,092 $ 2,060 $ 2,038


	Quarter Ended				Two Quarters Ended
	June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
	(In thousands)
Exit costs	$	141	$	50	$	223	$	94
Severance and other restructuring charges	(189)		1,565		1,203		1,883
Total restructuring charges and exit costs	$	(48)	$	1,615	$	1,426	$	1,977

Exit costs primarily consist of costs related to closed restaurants. Exit cost liabilities were $0.1 million as of ~~September 23, 2020~~both June 30, 2021 and ~~$0.2 million as of~~ December ~~25, 2019.~~30, 2020. Exit cost liabilities related to lease costs are included as a component of operating lease liabilities in our Condensed Consolidated Balance Sheets.

As of ~~September 23, 2020~~June 30, 2021 and December ~~25, 2019,~~30, 2020, we had accrued severance and other restructuring charges of $0.7 million and ~~$0.9~~$0.6 million, respectively. The balance as of ~~September 23, 2020~~June 30, 2021 is expected to be paid during the next 12 months.

We review our property, right-of-use assets ("ROU assets") and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of certain long-lived and ROU assets may not be recoverable. Based on our review, we recorded impairment charges of $0.3 million and $2.5 million, respectively, for the quarter and three quarters ended September 23, 2020 resulting from the impacts of the COVID-19 pandemic. The $2.5 million included $1.3 million related to property, $1.1 million related to operating lease ROU assets and less than $0.1 million related to each of finance lease ROU assets and reacquired franchise rights.

Note 10. Share-Based Compensation

Total share-based compensation included as a component of general and administrative expenses was as follows:


		Quarter Ended						Three Quarters Ended							Quarter Ended				Two Quarters Ended
		September 23, 2020		September 25, 2019		September 23, 2020		September 25, 2019			June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
		(In thousands)															(In thousands)
Employee share awards	Employee share awards	$	1,784	$	1,957	$	1,364	$	6,418	Employee share awards	$	3,164	$	1,326	$	6,417	$	(420)
Restricted stock units for board members	Restricted stock units for board members	214		219		608		724		Restricted stock units for board members	224		185		443		394
Total share-based compensation	Total share-based compensation	$	1,998	$	2,176	$	1,972	$	7,142	Total share-based compensation	$	3,388	$	1,511	$	6,860	$	(26)

Employee Share Awards

~~Employee share awards consist of performance share units and restricted stock units (which are equity classified).~~ During the ~~three~~two quarters ended ~~September 23, 2020, as a component of our annual compensation program,~~June 30, 2021, we granted certain employees approximately ~~0.8~~0.5 million ~~restricted stock~~performance share units ("PSUs") with a grant date fair value of ~~$10.46~~$24.74 per share that vest ~~over~~based on the total shareholder return (“TSR”) of our common stock compared to the TSRs of a ~~two-year period, as defined under the terms~~group of peer companies (from 0% to 200% of the ~~award.~~target award). As the TSR based performance shares contain a market condition, a Monte Carlo valuation was used to determine the grant date fair value. The ~~vesting~~performance period for these PSUs is the three year fiscal period beginning December 31, 2020 and ending December 27, 2023. The PSUs will completely vest and be earned at the end of the performance period at which point the TSR will be determined.

We also granted certain employees approximately 0.2 million restricted stock units is("RSUs") with a grant date fair value of $15.91 per share. The RSUs vest evenly over the ~~two-year~~three year period ~~beginning May 20, 2020 through May 20, 2022.~~ending December 27, 2023.

During the ~~three~~two quarters ended ~~September 23, 2020,~~June 30, 2021, we issued ~~0.3~~0.2 million shares of common stock related to vested performance share units. In addition, ~~0.2~~0.1 million shares of common stock were withheld in lieu of taxes related to vested performance share units.

We recognize compensation cost associated with our PSU and RSU awards on a straight-line basis over the entire performance period of the awards. As of ~~September 23, 2020,~~June 30, 2021, we had approximately ~~$9.8~~$19.1 million of unrecognized compensation cost related to unvested performance share awards and restricted share awards outstanding, which have a weighted average remaining contractual term of ~~1.5~~2.0 years.

~~Subsequent to the end of the quarter ended September 23, 2020, certain employee share awards were modified. See Note 16.~~

Restricted Stock Units for Board Members

During the ~~three~~quarter and two quarters ended ~~September 23, 2020,~~June 30, 2021, we granted less than 0.1 million restricted stock units (which are equity classified) with a weighted average grant date fair value of ~~$10.46~~$17.35 per unit to non-employee members of our Board of Directors. The restricted stock units vest after a one year service period. A director may elect to convert these awards into shares of common stock either on a specific date in the future (while still serving as a member of our Board of Directors), upon termination as a member of our Board of Directors, or in ~~three~~3 equal annual installments commencing after termination of service as a member of our Board.

During the ~~three~~quarter and two quarters ended ~~September 23, 2020,~~June 30, 2021, less than 0.1 million restricted stock units were converted into shares of common stock.

As of ~~September 23, 2020,~~June 30, 2021, we had approximately ~~$0.6~~$0.8 million of unrecognized compensation cost related to ~~all~~ unvested restricted stock unit awards outstanding, which have a weighted average remaining contractual term of ~~0.7~~0.9 years.

Note 11. Income Taxes

The effective income tax rate was ~~11.2%~~59.3% for the quarter ~~ended~~ and ~~20.6%~~23.6% for the ~~three~~two quarters ended ~~September 23, 2020,~~June 30, 2021, compared to ~~23.7%~~18.1% and ~~21.3%~~16.5% for the prior year periods, respectively. The ~~2020 year-to-date rate included a net benefit of 22.2% from the reclassification of cash flow derivatives from accumulated other comprehensive loss. The 2019~~2021 quarterly and year-to-date rates included the impact of excess tax benefits relating to share-based compensation of ~~1.0%~~13.4% and ~~1.8%~~(1.2)%, respectively. The 2020 quarterly and year-to-date rates included a benefit from the reclassification of cash flow derivatives from accumulated other comprehensive loss, net of 7.0% and 11.7%, respectively.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law as a response to the economic impacts of the COVID-19 pandemic. There is no significant impact on the Company's tax rate from the CARES Act for the quarter and three quarters ended September 23, 2020.

Note 12. Net Income (Loss) Per Share

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


		Quarter Ended						Three Quarters Ended							Quarter Ended				Two Quarters Ended
		September 23, 2020		September 25, 2019		September 23, 2020		September 25, 2019			June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
		(In thousands, except for per share amounts)															(In thousands, except per share amounts)
Net income (loss)	Net income (loss)	$	6,477	$	49,122	$	(7,475)	$	98,851	Net income (loss)	$	(828)	$	(22,965)	$	22,353	$	(13,952)

Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	63,793		59,430		59,350		60,457		Weighted average shares outstanding - basic	65,294		55,686		65,273		55,993
Effect of dilutive share-based compensation awards⁽¹⁾	Effect of dilutive share-based compensation awards⁽¹⁾	234		1,759		0		1,913		Effect of dilutive share-based compensation awards(1)	0		0		516		0
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	64,027		61,189		59,350		62,370		Weighted average shares outstanding - diluted	65,294		55,686		65,789		55,993

Basic net income (loss) per share	Basic net income (loss) per share	$	0.10	$	0.83	$	(0.13)	$	1.64	Basic net income (loss) per share	$	(0.01)	$	(0.41)	$	0.34	$	(0.25)
Diluted net income (loss) per share	Diluted net income (loss) per share	$	0.10	$	0.80	$	(0.13)	$	1.58	Diluted net income (loss) per share	$	(0.01)	$	(0.41)	$	0.34	$	(0.25)

Anti-dilutive share-based compensation awards⁽¹⁾	Anti-dilutive share-based compensation awards⁽¹⁾	568		274		1,975		226		Anti-dilutive share-based compensation awards(1)	998		3,493		483		3,493

(1) For the ~~three~~quarter ended June 30, 2021 and for the quarter and two quarters ended ~~September 23,~~June 24, 2020, share-based compensation awards have been omitted from the calculations because they have an anti-dilutive ~~effect on loss per share.~~effect.

Note 13. Shareholders' Deficit

Share Repurchases

We suspended share repurchases as of February 27, 2020 and terminated our previously approved Rule 10b5-1 Repurchase Plan effective March 16, 2020 in light of uncertain market conditions arising from the COVID-19 pandemic. Under our amended credit agreement, we are prohibited, until the date of delivery of our financial statements for the fiscal quarter ending ~~June 30,~~September 29, 2021, from making any stock repurchases.

Prior to ~~entering into our amended credit agreement,~~suspending share repurchases, during the quarter ended March 25, 2020, we repurchased a total of 1.7 million shares of our common stock for approximately $34.2 million. During the quarter ended March 25, 2020, we completed the $200 million share repurchase program that was approved by the Board of Directors in October 2017. In December 2019, our Board of Directors approved a share repurchase program authorizing us to repurchase up to $250 million of our common stock (in addition to the October 2017 authorization). At ~~September 23, 2020,~~June 30, 2021, there was approximately $248.0 million remaining that can be used to repurchase our common stock under the current program. Repurchased shares ~~are~~were included as treasury stock in our Condensed Consolidated Balance Sheets and our Condensed Consolidated Statement of Shareholders' Deficit.

In ~~November 2018, as part~~the fourth quarter of our previously authorized share repurchase programs, we entered into a $25 million accelerated share repurchase (the "ASR") agreement with MUFG Securities EMEA plc (“MUFG”). We paid $25 million in cash and received approximately 1.1fiscal 2020, the Board approved the retirement of 54.0 million shares of ~~our common stock (which represents the minimum shares to be delivered based on the cap price) and recorded $18.2 million of~~ treasury stock ~~related to these shares. The remaining balance of $6.8 million was recorded as additional paid-in capital in shareholders’ deficit as of December 26, 2018 as an equity forward contract.~~

During the quarter ended March 27, 2019, we settled the ASR agreement with MUFG. As a result, we received final delivery of an additional 0.4 million shares of our common stock. The total number of shares repurchased was based on a combined discounted volume-weighted average price (“VWAP”) of $17.04 per share, which was determined based on the average of the daily VWAP of our common stock, less a fixed discount, over the term of the ASR agreement. As a result of settling the ASR agreement, we recorded $6.8 million of treasury stock related to the settlement of the equity forward contract related to the ASR agreement.

~~Issuance and Sale of Common Stock~~

On July 1, 2020, the Company entered into an underwriting agreement with Wells Fargo Securities, LLC, as representative of the several underwriters named therein, for the issuance and sale by the Company of 8,000,000 shares of its common stock, par value $0.01 per share, in an underwritten public offering at a weighted average share price ~~to the public~~ of ~~$9.15 per share. On July 6, 2020, the Company received net proceeds~~$10.26. As of ~~$69.6 million from the sale of~~June 30, 2021, 0 shares ~~after deducting the underwriters' discounts and commissions and offering expenses.~~

remained in treasury stock.

1816

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 25, 2019 $ (781) $ (33,179) $ (33,960)
Amortization of net loss ⁽¹⁾
67 — 67
Changes in the fair value of cash flow derivatives — (47,139) (47,139)
Reclassification of cash flow derivatives to interest expense, net ⁽²⁾
— 2,097 2,097
Reclassification of loss related to dedesignation of derivatives to other nonoperating expense (income)⁽³⁾
— 7,354 7,354
Amortization of unrealized losses related to dedesignated derivatives to interest expense, net⁽³⁾
— 552 552
Income tax (expense) benefit related to items of other comprehensive loss (17) 9,841 9,824
Balance as of September 23, 2020 $ (731) $ (60,474) $ (61,205)


	Defined Benefit Plans		Derivatives		Accumulated Other Comprehensive Loss, Net
	(In thousands)
Balance as of December 30, 2020	$	(978)	$	(59,427)	$	(60,405)

Amortization of net loss (1)	80		—		80

Changes in the fair value of cash flow derivatives	—		2,225		2,225
Reclassification of cash flow derivatives to interest expense, net (2)	—		2,000		2,000

Amortization of unrealized losses related to dedesignated derivatives to interest expense, net (3)	—		166		166
Income tax expense related to items of other comprehensive income	(21)		(1,125)		(1,146)
Balance as of June 30, 2021	$	(919)	$	(56,161)	$	(57,080)

(1) Amount related to our defined benefit plans that was reclassified from accumulated other comprehensive loss, net and included as a component of pension expense within general and administrative expenses in our Condensed Consolidated Statements of Operations during the ~~three~~two quarters ended ~~September 23, 2020.~~June 30, 2021.

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

(3) During the quarter ended June 24, 2020, we dedesignated the cash flow relationship and discontinued hedge accounting treatment for the 2018 Swaps. As a result, we reclassified approximately $7.4 million of losses from accumulated other comprehensive loss, net to other nonoperating expense (income), net in our Condensed Consolidated Statements of Operations related to the portion of forecasted transaction no longer considered probable of occurring. The ~~remaining~~ losses related to the 2018 Swaps will continue to be included in accumulated other comprehensive loss, net and will be amortized as a component of interest expense, net in our ~~Condensed~~ Consolidated Statements of Operations over the remaining term of the 2018 Swaps. For the ~~three~~two quarters ended ~~September 23, 2020,~~June 30, 2021, we amortized approximately ~~$0.6~~$0.2 million of losses to interest expense, net related to the 2018 Swaps. We expect to amortize less than $0.1 million from accumulated other comprehensive loss related to our interest rate swaps during the next 12 months. See Note 7 for additional details.

Note 14. Commitments and Contingencies

We have guarantees related to certain franchisee loans. Payments under these guarantees would result from the inability of a franchisee to fund required payments when due. Through September 23, 2020, no events had occurred that caused us to make payments under these guarantees. There were $0.4 million and $0.6 million of loans outstanding under these programs as of September 23, 2020 and December 25, 2019, respectively. As of September 23, 2020, the maximum amount payable under the loan guarantees was $0.4 million. As a result of these guarantees, we have recorded liabilities of less than $0.1 million as of both September 23, 2020 and December 25, 2019, which are included as a component of other noncurrent liabilities in our Condensed Consolidated Balance Sheets.

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							Two Quarters Ended
		September 23, 2020		September 25, 2019			June 30, 2021		June 24, 2020
		(In thousands)							(In thousands)
Income taxes paid, net	Income taxes paid, net	$	545	$	17,853	Income taxes paid, net	$	1,942	$	277
Interest paid	Interest paid	$	11,851	$	14,393	Interest paid	$	8,478	$	8,057

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

Issuance of common stock, pursuant to share-based compensation plans	Issuance of common stock, pursuant to share-based compensation plans	$	6,042	$	7,522	Issuance of common stock, pursuant to share-based compensation plans	$	3,087	$	5,808
Noncash consideration received in connection with the sale of real estate		$	0	$	3,000

Execution of finance leases	Execution of finance leases	$	95	$	305	Execution of finance leases	$	464	$	11
Treasury stock payable		$	0	$	228
Receivables in connection with disposition of property		$	0	$	3,446
Insurance proceeds receivable		$	0	$	48

~~Note 16. Subsequent Events~~

~~Modification of Performance Share Units~~

On September 30, 2020, the Company’s Board of Directors (the "Board") approved adjustments to certain performance share units (“PSUs”) granted to employees as part of the Company’s Long-Term Incentive Program.

~~Awards for 2018 and 2019 were originally made 100% in the form of PSUs with three-year performance periods (2018-2020 for the 2018 PSUs and 2019-2021 for the 2019 PSUs).~~The PSUs are earned based 50% on growth in earnings per share over the performance period (“EPS Growth”) and 50% on the relative total stockholder return of the Company for the performance period against a peer group for the 2018 awards and against the S&P 600 Consumer Discretionary Index for the 2019 awards (“Relative TSR”).

~~The full service dining sector in which the Company operates has been severely negatively impacted by business disruptions resulting from the COVID-19 pandemic.These business disruptions, which could not have been foreseen when the 2018 and 2019 PSUs were awarded, have caused the EPS Growth goals for the PSUs to be unattainable.To address the loss of retentive and incentive value due to these unforeseen events, the Board approved the following adjustments to the 2018 and 2019 PSUs:~~

~~2018 PSUs~~

The EPS Growth goal for the 2018 PSUs was measured in accordance with the methodology established at the time of grant for the first two years of the performance period, 2018-2019, before the onset of the COVID-19 pandemic.~~That performance was above the maximum goal that had been set.That portion of the award was then prorated by two-thirds (since two-thirds of the performance period had been completed before the pandemic).~~The modification impacts approximately 0.2 million PSUs with a fair value of approximately $2.4 million at the modification date based on the grant date fair value of $10.00, the market value of our stock on the date of grant. The modified award equals 100% of target (i.e., 150% performance times two-thirds). The modified award will vest and be expensed over the three-month period ending December 30, 2020 (the remaining term of the original award), subject to continued employment. Prior to the modification, the fair value of the award was 0.

~~2019 PSUs~~

The Board removed the 2019-2021 EPS Growth goal and will instead apply the 2019-2021 Relative TSR goal to that portion of the award. The modification impacts approximately 0.3 million PSUs with an estimated fair value of approximately $2.4 million to $3.2 million at the modification date. The fair value will be based on a Monte Carlo valuation, which will be completed during the fourth quarter of 2020, as the modified awards contain a market condition. The modified award will vest and be expensed over the fifteen-month period ending December 29, 2021 (the remaining term of the original award), subject to continued employment. Prior to the modification, the fair value of the award was 0.

~~The Board did not change the existing Relative TSR portion of either award. These adjustments will be accounted for as modifications beginning in the fourth quarter of 2020.~~

2017

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

Forward-Looking Statements

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. The Company urges caution in considering its current trends and any outlook on its operations and financial results disclosed in this report. In addition, certain matters discussed in this report may constitute forward-looking statements. These forward-looking statements, which reflect management's best judgment based on factors currently known, are intended to speak only as of the date such statements are made and involve risks, uncertainties, and other factors that may cause the actual performance of Denny’s Corporation, its subsidiaries, and underlying restaurants to be materially different from the performance indicated or implied by such statements. Words such as “expect”, “anticipate”, “believe”, “intend”, “plan”, “hope”, "will" and variations of such words and similar expressions are intended to identify such forward-looking statements. Except as may be required by law, the Company expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. Factors that could cause actual performance to differ materially from the performance indicated by these forward-looking statements include, among others: the rapidly evolving COVID-19 pandemic and related containment measures, including the potential for further operational disruption from government mandates affecting restaurants; economic, public health and political conditions that impact consumer confidence and spending, including COVID-19; competitive pressures from within the restaurant industry; 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 (including acts of war and terrorism); and other factors from time to time set forth in the Company’s SEC reports and other filings, including but not limited to the discussion in Management’s Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December ~~25, 2019,~~30, 2020, the Company's Quarterly ~~Reports~~Report on Form 10-Q for the ~~quarters~~quarter ended March ~~25, 2020 and June 24, 2020,~~31, 2021, this report on Form 10-Q and in the Company’s subsequent quarterly reports on Form 10-Q.

~~Impact of the COVID-19 Pandemic~~Current Trends

On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. Following the pandemic declaration, federal, state and local governments responded by implementing restrictions on travel, "stay at home" directives, "social distancing" guidance, limitations of dine-in food service, and mandated dining room closures, which collectively had a significant adverse impact on the Company’s business performance, results of operations and cash flowsDomestic system-wide same-store sales1 for the quarter ended June 30, 2021 decreased 1.2% compared to the equivalent fiscal period in 2019 and ~~three quarters ended September 23,~~increased 117.0% compared to the equivalent fiscal period in 2020. Over 99% of Denny’s restaurants were operating with open dining rooms as of the end of the current quarter with an effective capacity of approximately 98%.

~~Operating Initiatives~~Total off-premise sales at domestic and franchised restaurants, inclusive of virtual brands, have remained strong at approximately 24% of average weekly sales in July 2021 compared to pre-pandemic levels in February 2020 of approximately 12%.

~~In response to various government orders restricting dine-in restaurant food service,~~Sales at domestic and franchised restaurants in the ~~Company implemented a number of initiatives to support Denny’s restaurants including: free delivery when guests place orders through~~quarter benefited from over 1,100 active locations with the Company’s ~~website or mobile app,~~first virtual brand, The Burger Den. The Company began a ~~contactless delivery option, streamlined menus~~phased rollout of its second virtual brand, The Meltdown, in April 2021 and is expected to ~~facilitate greater operational efficiency, a platform~~be substantially complete with the rollout during the third quarter at approximately half of ~~shareable family meal packs, a curb-side ordering~~its domestic locations. Transactions from these two virtual brands are highly incremental and ~~pick up option, selling grocery items where permitted, highlighting value products,~~leverage labor during underutilized dayparts with nearly 70% of transactions occurring during dinner and ~~evolving our dining service to include outdoor seating options.~~late night.

~~The~~Nearly 40% of domestic company and franchised restaurants were operating 24/7 at the end of the second quarter with staffing challenges being the primary headwind preventing restaurants from opening at the late night daypart. To address the industry-wide staffing challenges, the Company ~~remains focused~~conducted a hiring tour and engaged a third-party vendor to enhance its online recruiting allowing franchisees to post open positions on ~~the safety and wellbeing of~~ its ~~guests, restaurant teams, franchisees, employees, and suppliers. Retraining materials and communications have been distributed~~career website with greater visibility to the entire system of restaurants, reinforcing strict food safety procedures, handwashing and personal hygiene standards, and enhanced daily deep cleaning protocols. Restaurant teams are subject to daily temperature checks, are expected to wear face masks and gloves, and must wash their hands with alcohol-based sanitizer at regular intervals throughout their shift. The Company has remained in close contact with public health officials and government agencies to ensure all public health concerns are appropriately addressed. The current restrictions and the Company's related enhanced safety protocols are expected largely to continue and may have an adverse impact on our operating costs.potential applicants.

~~The Company has also worked closely with its suppliers to address contingency plans and has not experienced any significant supply chain disruptions.~~

2118

~~Current Trends~~

~~Domestic system-wide same-store sales~~¹ ~~sequentially improved during the third quarter ended September 23, 2020, as compared~~In an effort to ~~the equivalent periods during 2019, despite approximately 25% of the domestic system in California being limited~~provide greater transparency due to ~~off-premise only sales channels.~~

~~Average unit volumes of off-premise sales have increased over 95% since the beginning of~~ the COVID-19 pandemic, ~~supported by temporarily waived delivery fees, curbside service programs, and shareable family meal packs.~~

~~The~~Denny's is providing the following table that presents monthly same-store sales1 results compared to the equivalent fiscal ~~months in~~periods during 2019:

Domestic System-Wide Same-Store Sales¹~~for 2020~~ Compared to 2019 Fiscal ~~Periods:~~

Q1 2020: (6%) Q2 2020: (57%) Q3 2020: (34%) Q4 2020
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
3% 2% (19%) (76%) (65%) (41%) (39%) (35%) (28%)
(26%)^*

*Preliminary results

~~The following table presents domestic capacity restrictions:~~

~~Average Domestic Capacity Restrictions for Fiscal October 2020~~^*:Periods

Number of Units % of Domestic System
25% Capacity 229 84%
50-75% Capacity 667
Social Distancing 378
Off-Premise Only 207 14%
No Restrictions 15 1%
Temporarily Closed 19 1%
Total 1515 100%

*Preliminary results


	Domestic System-Wide Same-Store Sales1
	Fiscal Year 2021*
	Jan	Feb	Mar	Apr	May	Jun	Jul*
System	(31%)	(25%)	(9%)	(2%)	(3%)	1%	3%

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

~~Franchisee Support~~


	Domestic Average Units
	Fiscal Year 2021
	Jan	Feb	Mar	Apr	May	Jun	Jul *
System	1,504	1,501	1,501	1,499	1,498	1,497	1,495

24/7 Units	519	532	569	566	561	566	576
Limited Hour Units	939	928	912	920	926	920	909
	*July results are preliminary.

Direct financial relief to Denny’s franchise partners has included: deferral of remodels until January 2022, and deferral of most of our domestic development commitments for one year from their original due date, both of which will be reviewed to determine if an additional extension is appropriate; deferral of royalty and advertising fees for week 11 of the 2020 fiscal year; abatement of such fees for weeks 12 and 13 of the 2020 fiscal year; a $3 million royalty abatement in the second fiscal quarter of 2020; and a 12-week lease deferral for franchisees operating in properties owned by the Company. Fiscal weeks 11, 12 and 13 were all within the Company’s first quarter ended March 25, 2020.

Additionally, the Company has secured rent relief in the form of abatements or deferrals for over 78% of the leases in which the Company is a lessee, including those instances in which the Company subleases to franchisees and will be extending the same relief to the franchisees as a pass through.

Furthermore, the Company has worked closely with key vendors and primary third-party franchise lenders to help secure additional relief on behalf of franchisees. Substantially all of Denny’s franchisees pursued available forms of relief under federal stimulus programs, and franchisees representing approximately 99% of total domestic franchise restaurants have received funding under the Paycheck Protection Program.

~~Cost Savings Initiatives and Capital Allocation~~

In response to the COVID-19 pandemic, the Company implemented the following cost savings measures: suspended travel, canceled in-person field meetings, placed holds on all open corporate and field positions, significantly reduced restaurant level staffing across the Company portfolio, meaningfully reduced compensation for the Company’s board of directors and multiple levels of management, and furloughed over 25% of the employees at its corporate office, approximately half of which were

subsequently separated from the Company. The Company subsequently eased certain of these cost savings measures. For example, the Company has resumed recruiting for certain corporate and field positions. In addition, the compensation reductions expired on June 25, 2020.

The Company is also analyzing whether federal tax credits available in connection with the COVID-19 pandemic apply to wages paid to retained employees during the crisis. In addition, the Company suspended share repurchases as of February 27, 2020, and terminated its Rule 10b5-1 Plan effective March 16, 2020, in light of uncertain market conditions arising from the COVID-19 pandemic.

For the quarter ended March 25, 2020, the Company was in compliance with its financial covenants related to its credit facility, but projected that it would not be in compliance with certain financial covenants beginning for the quarter ended June 24, 2020 due to the impact of the COVID-19 pandemic. Effective May 13, 2020, the Company and certain of its subsidiaries entered into a second amendment to the current credit facility which amended the current credit agreement dated as of October 26, 2017. See ~~Liquidity and Capital Resources - Credit Facility. As of September 23, 2020, the Company was in compliance with its financial covenants related to the amended credit facility.~~

On July 6, 2020, the Company closed on the issuance and sale of 8,000,000 shares of common stock. Net proceeds of $69.6 million were received after deducting the underwriters’ discounts and commissions and offering expenses payable by the Company and disbursed to pay down the outstanding balance on the credit facility.

______________

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

2319

Statements of Operations

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


		Quarter Ended																		Three Quarters Ended																			Quarter Ended						Two Quarters Ended
		September 23, 2020								September 25, 2019							September 23, 2020										September 25, 2019							June 30, 2021					June 24, 2020					June 30, 2021	June 24, 2020
		(Dollars in thousands)																																								(Dollars in thousands)
Revenue:	Revenue:																					Revenue:
Company restaurant sales	Company restaurant sales	$	27,849		38.9	%	$	63,582		51.2	%	$	85,268		40.9	%	$	257,574		60.2	%	Company restaurant sales	$	47,572		44.8		%	$	15,128		37.7	%	$	81,141		43.5	%	$	57,419		42.0	%
Franchise and license revenue	Franchise and license revenue	43,795			61.1	%	60,676			48.8	%	123,232			59.1	%	169,979			39.8	%	Franchise and license revenue	58,593			55.2		%	25,033			62.3	%	105,600			56.5	%	79,437			58.0	%
Total operating revenue	Total operating revenue	71,644			100.0	%	124,258			100.0	%	208,500			100.0	%	427,553			100.0	%	Total operating revenue	106,165			100.0		%	40,161			100.0	%	186,741			100.0	%	136,856			100.0	%
Costs of company restaurant sales, excluding depreciation and amortization (a):	Costs of company restaurant sales, excluding depreciation and amortization (a):																					Costs of company restaurant sales, excluding depreciation and amortization (a):
Product costs	Product costs	7,106			25.5	%	15,603			24.5	%	21,541			25.3	%	62,871			24.4	%	Product costs	11,447			24.1		%	4,305			28.5	%	19,719			24.3	%	14,435			25.1	%
Payroll and benefits	Payroll and benefits	11,925			42.8	%	23,777			37.4	%	37,070			43.5	%	100,475			39.0	%	Payroll and benefits	16,970			35.7		%	8,039			53.1	%	29,935			36.9	%	25,145			43.8	%
Occupancy	Occupancy	2,638			9.5	%	4,301			6.8	%	8,529			10.0	%	15,583			6.0	%	Occupancy	2,844			6.0		%	2,728			18.0	%	5,694			7.0	%	5,891			10.3	%
Other operating expenses	Other operating expenses	5,701			20.5	%	10,625			16.7	%	15,954			18.7	%	39,320			15.3	%	Other operating expenses	6,552			13.8		%	4,534			30.0	%	12,629			15.6	%	10,253			17.9	%
Total costs of company restaurant sales	Total costs of company restaurant sales	27,370			98.3	%	54,306			85.4	%	83,094			97.5	%	218,249			84.7	%	Total costs of company restaurant sales	37,813			79.5		%	19,606			129.6	%	67,977			83.8	%	55,724			97.0	%
Costs of franchise and license revenue, excluding depreciation and amortization (a)	Costs of franchise and license revenue, excluding depreciation and amortization (a)	24,073			55.0	%	31,136			51.3	%	68,487			55.6	%	87,065			51.2	%	Costs of franchise and license revenue, excluding depreciation and amortization (a)	28,735			49.0		%	15,244			60.9	%	52,493			49.7	%	44,414			55.9	%
General and administrative expenses	General and administrative expenses	13,694			19.1	%	16,395			13.2	%	34,589			16.6	%	53,659			12.6	%	General and administrative expenses	17,548			16.5		%	13,153			32.8	%	34,495			18.5	%	20,895			15.3	%
Depreciation and amortization	Depreciation and amortization	4,048			5.7	%	4,338			3.5	%	12,252			5.9	%	15,619			3.7	%	Depreciation and amortization	3,897			3.7		%	4,058			10.1	%	7,558			4.0	%	8,204			6.0	%
Operating (gains), losses and other charges, net	Operating (gains), losses and other charges, net	(781)			(1.1)	%	(50,091)			(40.3)	%	2,319			1.1	%	(85,459)			(20.0)	%	Operating (gains), losses and other charges, net	(113)			(0.1)		%	1,627			4.1	%	419			0.2	%	3,100			2.3	%
Total operating costs and expenses, net	Total operating costs and expenses, net	68,404			95.5	%	56,084			45.1	%	200,741			96.3	%	289,133			67.6	%	Total operating costs and expenses, net	87,880			82.8		%	53,688			133.7	%	162,942			87.3	%	132,337			96.7	%
Operating income		3,240			4.5	%	68,174			54.9	%	7,759			3.7	%	138,420			32.4	%
Operating income (loss)																						Operating income (loss)	18,285			17.2		%	(13,527)			(33.7)	%	23,799			12.7	%	4,519			3.3	%
Interest expense, net	Interest expense, net	4,422			6.2	%	4,188			3.4	%	13,320			6.4	%	14,977			3.5	%	Interest expense, net	4,066			3.8		%	4,947			12.3	%	8,343			4.5	%	8,898			6.5	%
Other nonoperating expense (income), net	Other nonoperating expense (income), net	(8,477)			(11.8)	%	(415)			(0.3)	%	3,851			1.8	%	(2,111)			(0.5)	%	Other nonoperating expense (income), net	16,251			15.3		%	9,565			23.8	%	(13,797)			(7.4)	%	12,328			9.0	%
Income (loss) before income taxes	Income (loss) before income taxes	7,295			10.2	%	64,401			51.8	%	(9,412)			(4.5)	%	125,554			29.4	%	Income (loss) before income taxes	(2,032)			(1.9)		%	(28,039)			(69.8)	%	29,253			15.7	%	(16,707)			(12.2)	%
Provision for (benefit from) income taxes	Provision for (benefit from) income taxes	818			1.1	%	15,279			12.3	%	(1,937)			(0.9)	%	26,703			6.2	%	Provision for (benefit from) income taxes	(1,204)			(1.1)		%	(5,074)			(12.6)	%	6,900			3.7	%	(2,755)			(2.0)	%
Net income (loss)	Net income (loss)	$	6,477		9.0	%	$	49,122		39.5	%	$	(7,475)		(3.6)	%	$	98,851		23.1	%	Net income (loss)	$	(828)		(0.8)		%	$	(22,965)		(57.2)	%	$	22,353		12.0	%	$	(13,952)		(10.2)	%

Other Data:	Other Data:																					Other Data:
Company average unit sales	Company average unit sales	$	423				$	640				$	1,313				$	1,820				Company average unit sales	$	732					$	246				$	1,257				$	890
Franchise average unit sales	Franchise average unit sales	$	282				$	421				$	868				$	1,242				Franchise average unit sales	$	416					$	183				$	742				$	589
Company equivalent units (b)	Company equivalent units (b)	66					99					65					141					Company equivalent units (b)	65						62					65					64
Franchise equivalent units (b)	Franchise equivalent units (b)	1,608					1,603					1,620					1,560					Franchise equivalent units (b)	1,582						1,622					1,583					1,627
Company same-store sales increase (decrease) (c)(d)		(40.2)		%			(0.2)		%			(37.4)		%			2.1		%
Domestic franchise same-store sales increase (decrease) (c)(d)		(33.1)		%			1.2		%			(30.1)		%			2.0		%
Company same-store sales increase (decrease) vs. prior year (c)(e)																						Company same-store sales increase (decrease) vs. prior year (c)(e)	172.1		%				(64.9)		%			46.8		%			(35.9)		%
Domestic franchise same-store sales increase (decrease) vs. prior year (c)(e)																						Domestic franchise same-store sales increase (decrease) vs. prior year (c)(e)	113.2		%				(56.1)		%			30.8		%			(28.4)		%
Company same-store sales increase (decrease) vs. 2019 (c)(d)(e)																						Company same-store sales increase (decrease) vs. 2019 (c)(d)(e)	1.9		%				N/A					(10.6)		%			N/A
Domestic franchise same-store sales decrease vs. 2019 (c)(d)(e)																						Domestic franchise same-store sales decrease vs. 2019 (c)(d)(e)	(1.5)		%				N/A					(10.2)		%			N/A

(a)Costs of company restaurant sales percentages are as a percentage of company restaurant sales. Costs of franchise and license revenue percentages are as a percentage of franchise and license revenue. All other percentages are as a percentage of total operating revenue.

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

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

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

~~(d)~~(e)Prior year amounts have not been restated for ~~2020~~2021 comparable units.

2421

Unit Activity


		Quarter Ended			Three Quarters Ended				Quarter Ended		Two Quarters Ended
		September 23, 2020	September 25, 2019	September 23, 2020	September 25, 2019		June 30, 2021	June 24, 2020	June 30, 2021	June 24, 2020
Company restaurants, beginning of period	Company restaurants, beginning of period	67	133	68	173	Company restaurants, beginning of period	65	67	65	68
Units opened	Units opened	—	—	—	—	Units opened	—	—	—	—

Units sold to franchisees		—	(56)	—	(96)

Units closed	Units closed	(1)	—	(2)	—	Units closed	—	—	—	(1)
End of period	End of period	66	77	66	77	End of period	65	67	65	67

Franchised and licensed restaurants, beginning of period	Franchised and licensed restaurants, beginning of period	1,616	1,569	1,635	1,536	Franchised and licensed restaurants, beginning of period	1,584	1,628	1,585	1,635
Units opened	Units opened	5	13	16	21	Units opened	3	3	6	11
Units purchased from Company		—	56	—	96

Units closed	Units closed	(23)	(9)	(53)	(24)	Units closed	(7)	(15)	(11)	(30)
End of period	End of period	1,598	1,629	1,598	1,629	End of period	1,580	1,616	1,580	1,616
Total restaurants, end of period	Total restaurants, end of period	1,664	1,706	1,664	1,706	Total restaurants, end of period	1,645	1,683	1,645	1,683

Company Restaurant Operations

~~During~~Company restaurant sales increased $32.4 million, or 214.5%, for the quarter ended ~~September 23, 2020,~~June 30, 2021 and $23.7 million, or 41.3%, year-to-date compared to the prior year periods, respectively. The increases in company restaurant sales ~~decreased $35.7 million, or 56.2%,~~were primarily ~~resulting from 33~~due to reduced dine-in restrictions and fewer ~~equivalent company restaurants~~temporary closures related to the COVID-19 pandemic in the current periods as compared to the prior year ~~period and a 40.2% decrease in company~~periods. Company same-store sales ~~caused primarily by dine-in restrictions~~increased 172.1% for the current year quarter and temporary closures related to the COVID-19 pandemic. During the three quarters ended September 23, 2020, company restaurant sales decreased $172.3 million, or 66.9%, primarily resulting from 76 fewer equivalent company restaurants46.8% year-to-date as compared to the prior year ~~period and a 37.4% decrease in company same-store sales. The decreases in equivalent company restaurants were the result of our refranchising and development strategy during 2019.~~periods.

Total costs of company restaurant sales as a percentage of company restaurant sales was ~~98.3%~~79.5% for the quarter ended June 30, 2021 and ~~97.5%~~83.8% year-to-date compared to ~~85.4%~~129.6% and ~~84.7%~~97.0%, respectively, for the prior year periods.

Product costs were ~~25.5%~~24.1% for the quarter ended June 30, 2021 and ~~25.3%~~24.3% year-to-date compared to ~~24.5%~~28.5% and ~~24.4%~~25.1%, respectively, for the prior year ~~periods as a result of~~periods. The prior year included increases in paper ~~products~~product costs due to ~~the increase in~~higher delivery and to-go orders as a percentage of sales related to the COVID-19 pandemic.

Payroll and benefits were ~~42.8%~~35.7% for the quarter ended June 30, 2021 and ~~43.5%~~36.9% year-to-date compared to ~~37.4%~~53.1% and ~~39.0%~~43.8%, respectively,in the prior year periods. ~~The increases as a percentage of sales were primarily~~For the ~~result of sales deleveraging caused by lower sales resulting from the COVID-19 pandemic. For the~~current year quarter and year-to-date periods, management and staff payroll, including ~~incentive compensation and~~ payroll taxes, ~~increased 5.7~~decreased 19.4 percentage points and ~~4.5~~6.6 percentage points, respectively, as a percentage of sales. The primary driver of these ~~increases~~decreases was ~~management~~the leveraging effect of the increase in sales caused by higher sales as guests return to our restaurants due to the easing of COVID-19 restrictions. Also contributing to the decreases were lower staffing and deployment levels in the current year due to challenges in the labor market as ~~we retained~~compared to the prior year's retention of a significant portion of our management staff during ~~the~~a time that restaurants were closed or operating under government restrictions. ~~In addition, for~~Increases in unit level incentive compensation costs and workers' compensation costs partially offset the leveraging benefit of higher sales. For the current year quarter and year-to-date periods, ~~group benefit~~incentive compensation costs increased ~~0.9~~0.8 percentage points and 0.3 percentage points. The negative impact of lower sales has been partially offset by lower workers' compensation costs and tax credits related to the CARES Act. For the quarter and year-to-date periods, workers' compensation costs decreased 1.20.7 percentage points, ~~and 0.3 percentage points~~respectively, as a result of ~~fewer claims and~~the improvement in operating performance. For the current year quarter, workers' compensation costs increased 2.2 percentage points resulting from positive claims ~~development. Tax credits related to~~development in the ~~CARES Act were approximately $0.6 million for the quarter and year-to-date periods.~~prior year.

Occupancy costs were ~~9.5%~~6.0% for the quarter ended June 30, 2021 and ~~10.0%~~7.0% year-to-date compared to ~~6.8%~~18.0% and ~~6.0%~~10.3%, respectively, ~~for~~in the prior year periods. The ~~increases~~decreases as a percentage of sales were primarily due to the ~~sales deleveraging~~leveraging effect ~~caused by the COVID-19 pandemic. Additionally, the impact~~ of last year's refranchising of restaurants where we owned the real estate is contributing to the rate increase. The current year quarter also benefited from $0.4 million of positive general liability claims development compared to $0.4 million of negative claims development in the prior year period.improved sales.

2522

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

Quarter Ended Three Quarters Ended
September 23, 2020 September 25, 2019 September 23, 2020 September 25, 2019
(Dollars in thousands)
Utilities $ 1,281 4.6 % $ 2,438 3.8 % $ 3,815 4.5 % $ 8,916 3.5 %
Repairs and maintenance 711 2.6 % 1,774 2.8 % 1,928 2.3 % 5,742 2.2 %
Marketing 1,045 3.8 % 2,411 3.8 % 2,771 3.2 % 9,357 3.6 %
Other direct costs 2,664 9.6 % 4,002 6.3 % 7,440 8.7 % 15,305 5.9 %
Other operating expenses $ 5,701 20.5 % $ 10,625 16.7 % $ 15,954 18.7 % $ 39,320 15.3 %


	Quarter Ended								Two Quarters Ended
	June 30, 2021				June 24, 2020				June 30, 2021				June 24, 2020
	(Dollars in thousands)
Utilities	$	1,390	2.9	%	$	1,098	7.3	%	$	2,615	3.2	%	$	2,534	4.4	%
Repairs and maintenance	635		1.3	%	428		2.8	%	1,168		1.4	%	1,217		2.1	%
Marketing	1,365		2.9	%	607		4.0	%	2,332		2.9	%	1,726		3.0	%

Other direct costs	3,162		6.6	%	2,401		15.9	%	6,514		8.0	%	4,776		8.3	%
Other operating expenses	$	6,552	13.8	%	$	4,534	30.0	%	$	12,629	15.6	%	$	10,253	17.9	%

Other direct costs were ~~higher~~lower as a percentage of sales due to the ~~deleveraging~~leveraging effect of ~~lower sales as well as~~ higher ~~delivery costs due to the increase in delivery sales during the COVID-19 pandemic.~~sales.

Franchise Operations

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


		Quarter Ended														Three Quarters Ended																Quarter Ended					Two Quarters Ended
		September 23, 2020						September 25, 2019						September 23, 2020								September 25, 2019						June 30, 2021				June 24, 2020				June 30, 2021	June 24, 2020
		(Dollars in thousands)																																(Dollars in thousands)
Royalties	Royalties	$	17,896	40.9	%	$	27,830	45.9	%	$	48,462	39.3	%	$	79,742	46.9	%	Royalties	$	27,117	46.3		%	$	6,719	26.8	%	$	47,961	45.4	%	$	30,566	38.5	%
Advertising revenue	Advertising revenue	13,927		31.8	%	20,756		34.2	%	38,685		31.4	%	59,582		35.1	%	Advertising revenue	18,600		31.7		%	7,232		28.9	%	32,711		31.0	%	24,758		31.2	%
Initial and other fees	Initial and other fees	1,890		4.3	%	1,356		2.2	%	4,933		4.0	%	4,250		2.5	%	Initial and other fees	2,066		3.5		%	1,346		5.4	%	3,904		3.7	%	3,043		3.8	%
Occupancy revenue	Occupancy revenue	10,082		23.0	%	10,734		17.7	%	31,152		25.3	%	26,405		15.5	%	Occupancy revenue	10,810		18.4		%	9,736		38.9	%	21,024		19.9	%	21,070		26.5	%
Franchise and license revenue	Franchise and license revenue	$	43,795	100.0	%	$	60,676	100.0	%	$	123,232	100.0	%	$	169,979	100.0	%	Franchise and license revenue	$	58,593	100.0		%	$	25,033	100.0	%	$	105,600	100.0	%	$	79,437	100.0	%

Advertising costs	Advertising costs	$	13,927	31.8	%	$	20,757	34.2	%	$	38,685	31.4	%	$	59,583	35.1	%	Advertising costs	$	18,600	31.7		%	$	7,232	28.9	%	$	32,711	31.0	%	$	24,758	31.2	%
Occupancy costs	Occupancy costs	6,858		15.7	%	7,257		12.0	%	20,096		16.3	%	18,018		10.6	%	Occupancy costs	6,879		11.7		%	5,829		23.3	%	13,418		12.7	%	13,238		16.7	%
Other direct costs	Other direct costs	3,288		7.5	%	3,122		5.1	%	9,706		7.9	%	9,464		5.6	%	Other direct costs	3,256		5.6		%	2,183		8.7	%	6,364		6.0	%	6,418		8.1	%
Costs of franchise and license revenue	Costs of franchise and license revenue	$	24,073	55.0	%	$	31,136	51.3	%	$	68,487	55.6	%	$	87,065	51.2	%	Costs of franchise and license revenue	$	28,735	49.0		%	$	15,244	60.9	%	$	52,493	49.7	%	$	44,414	55.9	%

Franchise and license revenue ~~decreased $16.9~~increased $33.6 million, or ~~27.8%~~134.1%, for the quarter ended June 30, 2021 and ~~$46.7~~$26.2 million, or ~~27.5%~~32.9%, year-to-date compared to the prior year periods. Royalties ~~decreased $9.9~~increased $20.4 million, or ~~35.7%~~303.6%, and ~~$31.3~~$17.4 million, or ~~39.2%~~56.9%, for the current quarter and year-to-date periods, respectively, compared to the prior year periods. Advertising revenue ~~decreased $6.8~~increased $11.4 million, or ~~32.9%~~157.2%, for the current quarter and ~~$20.9~~$8.0 million, or ~~35.1%~~32.1%, year-to-date compared to the prior year periods. The ~~decreases~~increases in royalty and advertising revenue primarily resulted from ~~33.1%~~113.2% and ~~30.1% decreases~~30.8% increases in domestic same-store sales for the respective periods. Additionally, ~~we abated $0.2~~the prior year periods included abatements of $3.0 million and $4.9 million of royalties ~~during~~in the ~~quarter~~quarter-to-date and ~~$5.0 million of royalties~~year-to-date periods, respectively, and ~~$1.3~~$1.2 million of advertising fees in the year-to-date period to help our franchisees weather the impact of the COVID-19 pandemic. Partially offsetting these ~~decreases~~increases for both periods were ~~increases in~~decreases of 40 and 44 equivalent units ~~of five and 60 on a quarter-to-date~~for the quarterly and year-to-date ~~basis, respectively, resulting from our refranchising and development strategy in 2019.~~periods, respectively.

Initial and other fees increased ~~$0.5~~$0.7 million, or ~~39.4%~~53.5%, for the quarter ended June 30, 2021 and ~~$0.7~~$0.9 million, or ~~16.1%~~28.3%, year-to-date compared to the prior year periods. Occupancy revenue ~~decreased $0.7~~increased $1.1 million, or ~~6.1%~~11.0%, for the current quarter and ~~increased $4.7~~decreased less than $0.1 million, or ~~18.0%~~0.2%, year-to-date compared to the prior year periods. The ~~decrease~~increase in occupancy revenue for the current quarter primarily resulted from ~~lower~~higher percentage rents as a result of sales ~~decreases. The increase in occupancy revenue year-to-date resulted from additional leases~~increases due to reduced dine-in restrictions and ~~subleases~~temporary closures related to ~~franchisees as a result of our refranchising and development strategy in 2019.~~the COVID-19 pandemic.

Costs of franchise and license revenue ~~decreased $7.1~~increased $13.5 million, or ~~22.7%~~88.5%, for the quarter ended June 30, 2021 and ~~$18.6~~$8.1 million, or 21.3%, year-to-date compared to the prior year periods. The decreases were primarily related to the decrease in advertising costs, which corresponded to the related advertising revenue decreases noted above. Occupancy costs decreased $0.4 million, or 5.5%, for the quarter and increased $2.1 million, or 11.5%, year-to-date compared to prior year periods. The decrease in occupancy costs for the quarter primarily resulted from lower percentage rent expense as a result of sales decreases. The increase in occupancy

costs year-to-date were primarily related to the sale of leased company units to franchisees in the prior year, partially offset by lower percentage rent expense as a result of the sales decreases. Other direct franchise costs increased $0.2 million, or 5.3%, for the quarter and $0.2 million, or 2.5%18.2%, year-to-date compared to the prior year periods. The increases were primarily related to the increases in ~~other~~advertising costs year-over-year, which corresponded to the related advertising revenue increases noted above. Occupancy costs increased $1.1 million, or 18.0%, for the current quarter and $0.2 million, or 1.4%, year-to-date compared to prior year periods. The increase in occupancy costs for the current quarter primarily resulted from higher percentage rent expense as a result of sales

increases. Other direct franchise costs increased $1.1 million, or 49.1%, for the current quarter and decreased $0.1 million, or 0.8%, year-to-date compared to the prior year periods. Other direct franchise costs for the current quarter and year-to-date periods ~~were primarily due to $0.5 million and $1.4 million, respectively, of bad debt allowances resulting from actual and expected losses on franchise-related receivables due to the COVID-19 pandemic. These~~included increases ~~were~~in franchise administrative costs, partially offset by ~~reductions~~bad debt allowance reversals of $0.4 million and $0.7 million for the quarterly and year-to-date periods, respectively. Due to the increase in ~~franchise administrative costs. As a result,~~revenue, costs of franchise and license revenue ~~increased~~decreased to ~~55.0%~~49.0% and ~~55.6%~~49.7% for the quarter and ~~year-to-date periods~~two quarters ended ~~September 23, 2020~~June 30, 2021 from ~~51.3%~~60.9% and ~~51.2%~~55.9% for the respective prior year periods.

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 23, 2020 September 25, 2019 September 23, 2020 September 25, 2019
(In thousands)
Corporate administrative expenses $ 9,820 $ 12,091 $ 31,302 $ 37,396
Share-based compensation 1,998 2,176 1,972 7,142
Incentive compensation 1,290 1,872 1,305 7,329
Deferred compensation valuation adjustments 586 256 10 1,792
Total general and administrative expenses $ 13,694 $ 16,395 $ 34,589 $ 53,659


	Quarter Ended				Two Quarters Ended
	June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
	(In thousands)
Corporate administrative expenses	$	10,345	$	9,701	$	21,217	$	21,482
Share-based compensation	3,388		1,511		6,860		(26)
Incentive compensation	3,032		1		5,118		15
Deferred compensation valuation adjustments	783		1,940		1,300		(576)
Total general and administrative expenses	$	17,548	$	13,153	$	34,495	$	20,895

Corporate administrative expenses ~~decreased $2.3~~increased $0.6 million for the quarter ended June 30, 2021 and ~~$6.1~~decreased $0.3 million ~~year-to-date~~year-to-date. The increase for the current quarter was primarily due to prior year temporary cost ~~savings initiatives~~reductions related to the COVID-19 pandemic, ~~including tax~~partially offset by retention credits ~~related to~~of $0.5 million in the ~~CARES Act of approximately $0.8~~current year quarter. Share-based compensation increased $1.9 million for the current quarter and year-to-date periods, and the rationalization of certain business costs in connection with our refranchising and development strategy. Share-based compensation decreased $0.2 million for the quarter and $5.2$6.9 million year-to-date. Incentive compensation ~~decreased $0.6~~increased $3.0 million for the current quarter and ~~$6.0~~$5.1 million year-to-date. The ~~decreases~~increases in share-based compensation and incentive compensation primarily resulted from ~~lower expectations~~adjustments recorded in the prior year as a result of not meeting performance measures for the respective compensation plans due to the impacts of the COVID-19 pandemic. Subsequent to the end of the quarter ended September 23, 2020, certain employee share awards were modified. See Note 16 to our unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for additional details. 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 23, 2020 September 25, 2019 September 23, 2020 September 25, 2019
(In thousands)
Depreciation of property and equipment $ 2,834 $ 2,865 $ 8,525 $ 10,415
Amortization of financing lease right-of-use assets 456 592 1,423 2,473
Amortization of intangible and other assets 758 881 2,304 2,731
Total depreciation and amortization expense $ 4,048 $ 4,338 $ 12,252 $ 15,619


	Quarter Ended				Two Quarters Ended
	June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
	(In thousands)
Depreciation of property and equipment	$	2,938	$	2,810	$	5,653	$	5,691
Amortization of financing lease right-of-use assets	428		467		856		967
Amortization of intangible and other assets	531		781		1,049		1,546
Total depreciation and amortization expense	$	3,897	$	4,058	$	7,558	$	8,204

The decreases in depreciation and amortization expense during the ~~current~~ quarter ended June 30, 2021 and year-to-date periods were primarily ~~related~~due to ~~refranchising restaurants as part of our refranchising and development strategy during 2019.~~certain intangible assets becoming fully amortized in the prior year.

2724

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

Quarter Ended Three Quarters Ended
September 23, 2020 September 25, 2019 September 23, 2020 September 25, 2019
(In thousands)
Gains on sales of assets and other, net $ (1,202) $ (51,183) $ (2,260) $ (87,497)
Restructuring charges and exit costs 83 1,092 2,060 2,038
Impairment charges 338 — 2,519 —
Operating (gains), losses and other charges, net $ (781) $ (50,091) $ 2,319 $ (85,459)


	Quarter Ended				Two Quarters Ended
	June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
	(In thousands)
(Gains) losses on sales of assets and other, net	$	(65)	$	12	$	(1,007)	$	(1,058)
Restructuring charges and exit costs	(48)		1,615		1,426		1,977
Impairment charges	—		—		—		2,181
Operating (gains), losses and other charges, net	$	(113)	$	1,627	$	419	$	3,100

Gains on sales of assets and other, net for the two quarters ended June 30, 2021 were primarily related to the sale of three parcels of real estate during the quarter and five parcels of real estate during the three quarters ended September 23, 2020. During the quarter ended September 25, 2019, gains on sale of assets and other, net included $50.4 million in gains on the sale of 56 company restaurants and $1.3 million in gains on the sales of two parcelsone parcel of real estate. ~~During the three quarters ended September 25, 2019, gains~~Gains on sales of assets and other, net ~~included $76.8 million in gains on~~during the ~~sales of 96 company restaurants and $11.9 million on~~two quarters ended June 24, 2020 were primarily related to the sale of ~~six~~two parcels of real estate. ~~These sales were part of our refranchising and development strategy.~~

Restructuring charges and exit costs consisted of the following:


	Quarter Ended				Two Quarters Ended
	June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
	(In thousands)
Exit costs	$	141	$	50	$	223	$	94
Severance and other restructuring charges	(189)		1,565		1,203		1,883
Total restructuring and exit costs	$	(48)	$	1,615	$	1,426	$	1,977

~~During~~Restructuring and exit costs decreased by $1.7 million for the ~~three quarters ended September 23, 2020,~~current quarter and $0.6 million year-to-date compared to the prior year periods. The decrease for the current quarter and year-to-date period was primarily due to the Company permanently ~~separated~~separating with approximately 50 support center staff ~~resulting~~ in ~~increased severance~~the prior year period. Restructuring and ~~other restructuring charges~~exit costs for the ~~year. During the quarter and three~~two quarters ended ~~September 25, 2019, severance and other restructuring charges were~~June 30, 2021 include relocation costs associated with moving certain employees to our support center in the ~~result of cost reduction efforts as the Company moved to a more heavily franchised model.~~Dallas, Texas area.

Impairment charges of ~~$0.3~~$2.2 million during the ~~quarter and $2.5 million year-to-date~~two quarters ended June 24, 2020 were the result of an assessment of the recoverability of assets resulting from the impact of the COVID-19 pandemic.

Operating income was ~~$3.2~~$18.3 million for the current quarter and ~~$7.8~~$23.8 million year-to-date compared to a loss of $13.5 million and income of ~~$68.2 million and $138.4~~$4.5 million, respectively, for the prior year periods.

Interest expense, net consisted of the following:

Quarter Ended Three Quarters Ended
September 23, 2020 September 25, 2019 September 23, 2020 September 25, 2019
(In thousands)
Interest on credit facilities $ 2,251 $ 2,698 $ 6,790 $ 9,633
Interest on interest rate swaps, net 471 78 2,097 40
Interest on financing lease liabilities 789 906 2,348 3,740
Letters of credit and other fees 349 327 860 951
Interest income (11) (60) (78) (145)
Total cash interest, net 3,849 3,949 12,017 14,219
Amortization of deferred financing costs 251 152 591 456
Amortization of interest rate swap losses 283 — 552 —
Interest accretion on other liabilities 39 87 160 302
Total interest expense, net $ 4,422 $ 4,188 $ 13,320 $ 14,977


	Quarter Ended				Two Quarters Ended
	June 30, 2021		June 24, 2020		June 30, 2021		June 24, 2020
	(In thousands)
Interest on credit facility	$	1,554	$	2,160	$	3,255	$	4,539
Interest on interest rate swaps	1,006		1,570		2,001		1,895
Interest on financing lease liabilities	746		774		1,514		1,559
Letters of credit and other fees	377		250		732		511
Interest income	(7)		(37)		(15)		(67)
Total cash interest, net	3,676		4,717		7,487		8,437
Amortization of deferred financing costs	344		188		688		340
Amortization of interest rate swap losses	46		—		167		—
Interest accretion on other liabilities	—		42		1		121
Total interest expense, net	$	4,066	$	4,947	$	8,343	$	8,898

2825

~~Interest~~Total cash interest expense, net ~~increased~~decreased by ~~$0.2~~$1.0 million for both the quarter ended June 30, 2021 and year-to-date periods as compared to the respective prior year periods. Combined interest on credit facility borrowings and interest rate swaps decreased by $1.2 million for both the current quarter and year-to-date periods. These decreases primarily resulted from decreased average borrowings in the current quarter and year-to-date periods and lower average interest rates on the credit facility for the year-to-date period.Partially offsetting these decreases to total interest expense net, for both the quarter and ~~decreased by $1.7~~year-to-date periods were $0.2 million ~~year-to-date compared to the prior year periods. The increase~~and $0.3 million increases in ~~interest expense for the quarter was primarily due to~~ the amortization of ~~dedesignated interest rate swap losses from accumulated other comprehensive income, net. The year-to-date decrease was primarily due to lower net interest rates on borrowings and a reduction in~~deferred financing ~~lease interest~~costs resulting from ~~sales of restaurants to franchisees during the~~ prior ~~year.~~year credit facility amendments.

Other nonoperating expense (income), net was ~~income~~expense of ~~$8.5~~$16.3 million for the quarter and ~~a loss~~income of ~~$3.9~~$13.8 million year-to-date, compared to ~~income~~expense of ~~$0.4~~$9.6 million and ~~$2.1~~$12.3 million, respectively, for the prior year periods. Other nonoperating expense (income) for the current quarter primarily consisted of ~~$7.8~~$17.2 million ~~in income~~of losses related to interest rate swap valuation ~~adjustments.~~adjustments, partially offset by $0.8 million of gains on deferred compensation plan investments. The year-to-date period ~~includes~~primarily consisted of $12.7 million of gains on interest rate swap valuation adjustments in addition to $1.4 million of gains on deferred compensation plan investments. Prior year other nonoperating expense for the quarter and year-to-date periods primarily consisted of recognized losses on interest rate swaps of ~~$7.4~~$11.5 million resulting from the discontinuance of hedge accounting treatment on a portion of our interest rate ~~swaps and income of $3.7 million related to interest rate swap valuation adjustments on dedesignated interest rate~~ swaps. Additionally, nonoperating expense increased by $1.8 million year-to-date as compared to the prior year period due to lower gains on deferred compensation plan investments. For additional details related to the interest rate swaps, see Note 7 to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Provision for (benefit from) income taxes was ~~expense~~a benefit of ~~$0.8~~$1.2 million for the quarter ended June 30, 2021 and a ~~benefit~~provision of ~~$1.9~~$6.9 million year-to-date, compared to ~~expense~~benefits of ~~$15.3~~$5.1 million and ~~$26.7~~$2.8 million for the prior year periods. These decreases were primarily due to the significant gains in the prior year from the Company's refranchising and development strategy. The 2020 year-to-date rate included a net benefit of 22.2% from the reclassification of cash flow derivatives from accumulated other comprehensive loss. The effective tax rate was ~~11.2%~~59.3% for the quarter and ~~20.6%~~23.6% year-to-date, compared to ~~23.7%~~18.1% and ~~21.3%~~16.5%, respectively, for the prior year periods. The ~~2019~~2021 quarterly and year-to-date rates included the impact of excess tax benefits relating to share-based compensation of ~~1.0%~~13.4% and ~~1.8%~~(1.2%), respectively. The 2020 quarterly and year-to-date rates included a benefit from the reclassification of cash flow derivatives from accumulated other comprehensive loss, net of 7.0% and 11.7%, respectively.

Net income (loss) was a net ~~income~~loss of ~~$6.5~~$0.8 million for the quarter ended June 30, 2021 and anet income of $22.4 million year-to-date compared to net loss of ~~$7.5 million year-to-date compared with net income of $49.1~~$23.0 million and ~~$98.9~~$14.0 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 and, prior to the second quarter of 2020, the repurchase of shares of our common stock.

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

Three Quarters Ended
September 23, 2020 September 25, 2019
(In thousands)
Net cash provided by (used in) operating activities $ (11,610) $ 32,026
Net cash provided by investing activities 1,275 95,635
Net cash provided by (used in) financing activities 18,180 (130,667)
Increase (decrease) in cash and cash equivalents $ 7,845 $ (3,006)


	Two Quarters Ended
	June 30, 2021		June 24, 2020
	(In thousands)
Net cash provided by (used in) operating activities	$	43,371	$	(7,958)
Net cash used in investing activities	(1,007)		(334)
Net cash provided by (used in) financing activities	(35,374)		25,997
Increase in cash and cash equivalents	$	6,990	$	17,705

Net cash flows provided by operating activities were $43.4 million for the two quarters ended June 30, 2021 compared to net cash flows used in operating activities ~~were $11.6~~of $8.0 million for the ~~three~~two quarters ended ~~September 23, 2020 compared to net~~June 24, 2020. The increase in cash flows provided by operating activities ~~of $32.0 million for the three quarters ended September 25, 2019. The decrease in cash flows provided by (used in) operating activities~~ was primarily due to ~~impacts~~the improvement of ~~the COVID-19 pandemic~~operating results in 2021 and the timing of prior year accrual ~~payments during the three quarters ended September 23, 2020.~~payments. We believe that our estimated cash flows from operations for ~~2020,~~2021, 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 ~~provided by~~used in investing activities were ~~$1.3~~$1.0 million for the ~~three~~two quarters ended ~~September 23,~~June 30, 2021. These cash flows primarily consisted of capital expenditures of $3.1 million, partially offset by proceeds from sales of restaurants, real estate and other assets of $1.6 million, collections on notes receivable of $0.4 million, and proceeds from sales of investments of $0.2 million. Net cash flows used in investing activities were $0.3 million for the two quarters ended June 24, 2020. These cash flows primarily consisted of capital expenditures of $4.5 million and investment purchases of $1.4 million, which were ~~primarily comprised of~~mostly offset by proceeds from sales of restaurants and real estate of ~~$4.5~~$2.2 million and proceeds from the sale of investments of $2.9 ~~million, partially offset by capital expenditures of $5.5 million and investment purchases of $1.4~~ million. Net cash flows provided by investing activities were $95.6 million for the three quarters ended September 25, 2019. These cash flows were primarily comprised of proceeds from sales of restaurants and real estate of $118.4 million and the collections of notes receivable of $3.0 million, partially offset by capital expenditures of $12.6 million, acquisitions of real estate of $9.5 million, deposits on acquisitions of real estate of $1.5 million, and investment purchases of $1.3 million.

2926

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


		Three Quarters Ended							Two Quarters Ended
		September 23, 2020		September 25, 2019			June 30, 2021		June 24, 2020
		(In thousands)							(In thousands)
Facilities	Facilities	$	2,808	$	8,285	Facilities	$	1,626	$	1,966
New construction	New construction	114		1,999		New construction	—		114
Remodeling	Remodeling	991		1,104		Remodeling	356		965
Information technology	Information technology	1,164		941		Information technology	842		1,138
Other	Other	399		317		Other	284		293
Capital expenditures (excluding acquisitions)		$	5,476	$	12,646
Capital expenditures						Capital expenditures	$	3,108	$	4,476

Cash flows used in financing activities were $35.4 million for the two quarters ended June 30, 2021, which included net long-term debt repayments of $31.0 million, in addition to net bank overdraft payments of $3.1 million and payments of tax withholdings on share-based compensation of $1.4 million. Cash flows provided by financing activities were ~~$18.2~~$26.0 million for the ~~three~~two quarters ended ~~September 23,~~June 24, 2020, which included ~~proceeds~~net long-term debt borrowings of ~~$69.6~~$66.4 million, ~~from the issuance of common stock,~~ partially offset by ~~net long-term debt repayments of $11.1 million and~~ cash payments for stock repurchases of $36.0 million. Cash flows used in financing activities were $130.7 million for the three quarters ended September 25, 2019, which included cash payments for stock repurchases of $50.6 million, and net long-term debt repayments of $75.5 million.

Our working capital deficit was ~~$15.3~~$39.2 million at ~~September 23, 2020~~June 30, 2021 compared to ~~$42.8~~$28.5 million at December ~~25, 2019.~~30, 2020. The ~~decrease~~increase in working capital deficit was primarily related to ~~lower payables and accruals resulting from~~ the ~~impacts~~increase in current liabilities as of ~~the COVID-19 pandemic.~~June 30, 2021. We are able to operate with a substantial working capital deficit because (1) restaurant operations and most food service operations are conducted primarily on a cash (and cash equivalent) basis with a low level of accounts receivable, (2) rapid turnover allows for a limited investment in inventories, and (3) accounts payable for food, beverages and supplies usually becomes due after the receipt of cash from the related sales.

Credit Facility

~~On May 13, 2020, we entered into the Second Amendment to our credit agreement.~~ As ~~a result~~ of ~~the Second Amendment, beginning May 13, 2020 until the date of delivery of our financial statements for the fiscal quarter ending~~ June 30, 2021, borrowings under the credit facility bore interest at a rate of ~~the amended credit agreement was increased to~~ LIBOR plus 3.00% and the commitment fee, ~~which is~~ paid on the unused portion of the credit facility, was ~~increased~~set to 0.40%. ~~During this period, we will also have supplemental monthly reporting obligations to our lenders and will be~~The maturity date for the credit facility is October 26, 2022.

The Company is prohibited from paying dividends and making stock repurchases and other general investments. ~~Additionally,~~Limitations on capital expenditures ~~will be restricted to $10~~of $12 million are in effect for the ~~aggregate, from~~period of May 13, 2020 through ~~the fiscal quarter ending March 31,~~September 29, 2021.

~~Issuance and Sale of Common Stock~~

On July 1, 2020, the Company entered into an underwriting agreement with Wells Fargo Securities, LLC, as representative of the several underwriters named therein, for the issuance and sale by the Company of 8,000,000 shares of its common stock, par value $0.01 per share, in an underwritten public offering at a price to the public of $9.15 per share. On July 6, 2020, the Company received net proceeds of $69.6 million from the sale of shares, after deducting the underwriters' discounts and commissions and offering expenses.

Implementation of New Accounting Standards

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We have exposure to interest rate risk related to certain instruments entered into for other than trading purposes. Specifically, as of ~~September 23, 2020,~~June 30, 2021, borrowings under our credit facility bore interest at variable rates based on LIBOR plus 3.00% 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 23, 2020~~June 30, 2021 is as follows:


Trade Date	Trade Date	Effective Date	Maturity Date	Notional Amount			Fixed Rate		Trade Date	Effective Date	Maturity Date	Notional Amount			Fair Value		Fixed Rate
				(In thousands)								(In thousands)
Swaps designated as cash flow hedges	Swaps designated as cash flow hedges								Swaps designated as cash flow hedges
March 20, 2015	March 20, 2015	March 29, 2018	March 31, 2025	$	120,000		2.44	%	March 20, 2015	March 29, 2018	March 31, 2025	$	120,000		$	7,921	2.44	%
October 1, 2015	October 1, 2015	March 29, 2018	March 31, 2026	50,000			2.46	%	October 1, 2015	March 29, 2018	March 31, 2026	$	50,000		$	3,783	2.46	%
Dedesignated swaps	Dedesignated swaps								Dedesignated swaps
February 15, 2018	February 15, 2018	March 31, 2020	December 31, 2033	80,000		(1)	3.19	%	February 15, 2018	March 31, 2020	December 31, 2033	$	100,000	(1)	$	46,034	3.19	%
Total									Total			$	270,000		$	57,738

As of ~~September 23, 2020,~~June 30, 2021, the total notional amount of our interest rate swaps was in excess of 100% of our floating rate debt. Based on the levels of borrowings under the credit facility at ~~September 23, 2020,~~June 30, 2021, if interest rates changed by 100 basis points, our annual cash flow and income before taxes would not change. However, depending on market considerations, fluctuations in the fair values of our interest rate swaps could be significant. With the exception of these changes in the fair value of our interest rate swaps and in the levels of borrowings under our credit facility, there have been no material changes in our quantitative and qualitative market risks since the prior reporting period. For additional information related to our interest rate swaps, including changes in the fair value, refer to Notes 6, 7 and 13 to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Item 4. Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management conducted an evaluation (under the supervision and with the participation of our Chief Executive Officer, John C. Miller, and our ~~Senior~~Executive Vice President and Chief Financial Officer, Robert P. Verostek) as of the end of the period covered by this Quarterly Report on Form 10-Q, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, Messrs. Miller and Verostek each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to our management, including Messrs. Miller and Verostek, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during our ~~last~~ fiscal quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

~~The Company is supplementing~~There have been no material changes in the ~~Risk Factors previously disclosed~~risk factors set forth in Part I, Item 1A, ~~of the~~“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2019, (the “Annual Report”) and the Quarterly Reports on Form 10-Q for the fiscal quarters ended March 25, 2020 and June 24,~~30, 2020. ~~The following risk factors should be read in conjunction with the Risk Factors disclosed in the Annual Report and such other reports.~~

The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which could continue to have a material adverse impact on our business, results of operations, liquidity and financial condition for an extended period of time.

The outbreak of COVID-19 has had a material adverse effect on our business, results of operations, liquidity and financial condition. In 2020, the COVID-19 pandemic has significantly impacted the economy in general, and our business specifically, and it could continue to negatively affect our business in a number of ways. These effects could include, but are not limited to:

•~~disruptions or restrictions on our employees’ ability to work effectively due to travel bans, quarantines, shelter-in-place orders or other limitations.~~

•~~temporary restrictions on and closures of our company operated restaurants and our franchised and licensed restaurants or our suppliers.~~

•failure of third parties on which we rely, including our franchisees and suppliers, to meet their respective obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties or issues with the regional or national supply chain.

•~~volatility of commodity costs due to the COVID-19 outbreak.~~

•disruptions or uncertainties related to the COVID-19 outbreak for a sustained period of time which could hinder our ability to achieve our strategic goals and our ability to meet financial obligations as they come due.

•~~customer reluctance to return to in-restaurant dining.~~

The extent to which the COVID-19 pandemic, or other outbreaks of disease or similar public health threats, materially and adversely impacts our business, results of operations, liquidity and financial condition is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak.

In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the COVID-19 pandemic on us or our franchisees, suppliers, third-party service providers, and/or customers. During the quarters ended June 24, 2020

and September 23, 2020, many state and local governments started to ease certain restrictions on our Company operated and franchise restaurants and we began to reopen dining rooms with capacity limitations. As dining room restrictions ease, we expect to incur increased cleaning and supply costs and labor inefficiencies as we adjust to improved sales volumes and enhanced health and safety protocols. We may not be able to attract customers to our reopened restaurants given the risks, or perceived risks, of gathering in public places, dining in restaurants and complying with social distancing and/or depressed consumer sentiment due to adverse economic conditions, including job losses, among other things. We also may be unable to reinstate, retain and incentivize our employees. Previously terminated or furloughed employees may have found other jobs or otherwise be unwilling or unable to return to work. Even as restaurants resume operations, a single case of COVID-19 in a restaurant could result in additional costs and further closures, or a “second wave” or recurrence of COVID-19 cases could cause state and local governments to reinstate restrictions on our restaurants, as we have seen recently, and we may need to temporarily close our restaurants or otherwise limit operations.

While we currently intend for all Company owned restaurants to reopen, certain Company operated and franchise restaurants may remain permanently closed or ultimately close as a result of the pandemic. The effects of the pandemic on our business could be long-lasting and could continue to have adverse effects on our business, results of operations, liquidity, cash flows and financial condition, some of which may be significant, and may adversely impact our ability to operate our business on the same terms as we conducted business prior to the pandemic even after our restaurants fully reopen.

3329

Item 6. Exhibits

The following are included as exhibits to this report:


Exhibit No.						Description
10.1						Summary of Non-Employee Director Compensation as of May 19, 2021.

10.2						Denny's Corporation 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 99.1 to the Denny's Corporation Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 19, 2021).

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

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

32.1						Certification of John C. Miller, Chief Executive Officer of Denny's Corporation, and Robert P. Verostek, ~~Senior~~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)

3430

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 27, 2020~~August 3, 2021

By:

/s/ Robert P. Verostek

Robert P. Verostek

~~Senior~~Executive Vice President and
Chief Financial Officer

Date:

~~October 27, 2020~~August 3, 2021

By:

/s/ Jay C. Gilmore

Jay C. Gilmore

Senior Vice President,
Chief Accounting Officer and
Corporate Controller

3531


			Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Comprehensive Income (Loss)			5
Condensed Consolidated Statements of Shareholders' Deficit			6
Condensed Consolidated Statements of Cash Flows			8
Notes to Condensed Consolidated Financial Statements			9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			2118
Item 3. Quantitative and Qualitative Disclosures About Market Risk			3128
Item 4. Controls and Procedures			3228

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			3229
Item 1A. Risk Factors			3229
Item 6. Exhibits			3430
Signatures			3531


	Number of Units	% of Domestic System
25% Capacity	229	84%
50-75% Capacity	667
Social Distancing	378
Off-Premise Only	207	14%
No Restrictions	15	1%
Temporarily Closed	19	1%
Total	1515	100%