Denny's (DENN) 10-Q 2019 Q3 Quarterly report

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 25, 2019

OR

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

For the transition period from _______________ to ________________

Commission File Number 0-18051

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 are a 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 ☐ 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 23, 2019, 59,058,729 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION
Item 1.   Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Income (Unaudited)	4
Condensed Consolidated Statements of Comprehensive Income (Unaudited)	5
Condensed Consolidated Statements of Shareholders' Deficit (Unaudited)	6
Condensed Consolidated Statements of Cash Flows (Unaudited)	8
Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.   Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.   Controls and Procedures	30
PART II - OTHER INFORMATION
Item 1.   Legal Proceedings	30
Item 1A.   Risk Factors	30
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6.   Exhibits	31
Signatures	32

2

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

Denny’s Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

	September 25, 2019				December 26, 2018
	(In thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	2,020			$	5,026
Investments	3,188				1,709
Receivables, net	19,903				26,283
Inventories	1,468				2,993
Assets held for sale	1,419				723
Prepaid and other current assets	11,034				10,866
Total current assets	39,032				47,600
Property, net of accumulated depreciation of $153,175 and $226,620, respectively	98,540				117,251
Financing lease right-of-use assets, net of accumulated amortization of $9,973 and $15,526, respectively	12,410				22,753
Operating lease right-of-use assets, net	143,371				—
Goodwill	36,884				39,781
Intangible assets, net	54,591				59,067
Deferred financing costs, net	1,879				2,335
Deferred income taxes, net	21,423				17,333
Other noncurrent assets	33,301				29,229
Total assets	$	441,431			$	335,349
Liabilities				��
Current liabilities:
Current finance lease liabilities	$	1,812			$	3,410
Current operating lease liabilities	16,718				—
Accounts payable	17,705				29,527
Other current liabilities	51,618				61,790
Total current liabilities	87,853				94,727
Long-term liabilities:
Long-term debt	213,000				286,500
Noncurrent finance lease liabilities	15,407				27,181
Noncurrent operating lease liabilities	137,165				—
Liability for insurance claims, less current portion	12,556				12,199
Other noncurrent liabilities	94,196				48,087
Total long-term liabilities	472,324				373,967
Total liabilities	560,177				468,694
Shareholders' deficit
Common stock $0.01 par value; 135,000 shares authorized; September 25, 2019: 109,413 shares issued and 59,340 shares outstanding; December 26, 2018: 108,585 shares issued and 61,533 shares outstanding	$	1,094			$	1,086
Paid-in capital	604,406				592,944
Deficit	(207,957		)		(306,414		)
Accumulated other comprehensive loss, net of tax	(41,907		)		(4,146		)
Treasury stock, at cost, 50,073 and 47,052 shares, respectively	(474,382		)		(416,815		)
Total shareholders' deficit	(118,746		)		(133,345		)
Total liabilities and shareholders' deficit	$	441,431			$	335,349

See accompanying notes

3

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

	Quarter Ended						Three Quarters Ended
	September 25, 2019			September 26, 2018			September 25, 2019			September 26, 2018
	(In thousands, except per share amounts)
Revenue:
Company restaurant sales	$	63,582		$	103,609		$	257,574		$	307,543
Franchise and license revenue	60,676			54,414			169,979			163,087
Total operating revenue	124,258			158,023			427,553			470,630
Costs of company restaurant sales, excluding depreciation and amortization:
Product costs	15,603			25,303			62,871			75,292
Payroll and benefits	23,777			41,041			100,475			123,332
Occupancy	4,301			6,083			15,583			17,165
Other operating expenses	10,625			15,419			39,320			45,490
Total costs of company restaurant sales	54,306			87,846			218,249			261,279
Costs of franchise and license revenue, excluding depreciation and amortization	31,136			28,174			87,065			85,779
General and administrative expenses	16,395			15,981			53,659			48,138
Depreciation and amortization	4,338			6,760			15,619			19,965
Operating (gains), losses and other charges, net	(50,091		)	793			(85,459		)	1,615
Total operating costs and expenses, net	56,084			139,554			289,133			416,776
Operating income	68,174			18,469			138,420			53,854
Interest expense, net	4,188			5,314			14,977			15,324
Other nonoperating income, net	(415		)	(460		)	(2,111		)	(877		)
Income before income taxes	64,401			13,615			125,554			39,407
Provision for income taxes	15,279			2,810			26,703			7,217
Net income	$	49,122		$	10,805		$	98,851		$	32,190
Basic net income per share	$	0.83		$	0.17		$	1.64		$	0.50
Diluted net income per share	$	0.80		$	0.16		$	1.58		$	0.49
Basic weighted average shares outstanding	59,430			63,246			60,457			63,774
Diluted weighted average shares outstanding	61,189			65,522			62,370			66,122

See accompanying notes

4

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Quarter Ended					Three Quarters Ended
	September 25, 2019			September 26, 2018		September 25, 2019			September 26, 2018
	(In thousands)
Net income	$	49,122		$	10,805	$	98,851		$	32,190
Other comprehensive income (loss), net of tax:
Minimum pension liability adjustment, net of tax of $6, $7, $17 and $20, respectively	16			21		48			64
Changes in the effective portion of the fair value of derivatives, net of tax of $(5,251), $1,543, $(13,574) and $1,611, respectively	(15,067		)	4,422		(37,838		)	4,614
Reclassification of derivatives to interest expense, net of tax of $21, $40, $11 and $62, respectively	57			115		29			179
Other comprehensive (loss) income	(14,994		)	4,558		(37,761		)	4,857
Total comprehensive income	$	34,128		$	15,363	$	61,090		$	37,047

See accompanying notes

5

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Deficit

For the Quarter Ended September 25, 2019 and September 26, 2018

(Unaudited)

	Common Stock			Treasury Stock					Paid-in Capital		Deficit			Accumulated Other Comprehensive Income (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	—	—		—		—			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 Income (Loss), Net			Total Shareholders’ Deficit
	Shares	Amount		Shares		Amount
	(In thousands)
Balance, June 27, 2018	108,470	$	1,084	(45,014	)	$	(384,470	)	$	596,248		$	(328,722	)	$	(2,017	)	$	(117,877	)
Net income	—	—		—		—			—			10,805			—			10,805
Other comprehensive income	—	—		—		—						—			4,558			4,558
Share-based compensation on equity classified awards, net	—	—		—		—			1,052			—			—			1,052
Purchase of treasury stock	—	—		(574	)	(8,563		)	—			—			—			(8,563		)
Issuance of common stock for share-based compensation	3	1		—		—			(1		)	—			—			—
Exercise of common stock options	20	—		—		—			45			—			—			45
Balance, September 26, 2018	108,493	$	1,085	(45,588	)	$	(393,033	)	$	597,344		$	(317,917	)	$	2,541		$	(109,980	)

See accompanying notes

6

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Deficit

For the Three Quarters Ended September 25, 2019 and September 26, 2018

(Unaudited)

	Common Stock			Treasury Stock					Paid-in Capital			Deficit			Accumulated Other Comprehensive Income (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	—	—		—		—			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 Income (Loss), Net			Total Shareholders’ Deficit
	Shares	Amount		Shares		Amount
	(In thousands)
Balance, December 27, 2017	107,740	$	1,077	(43,151	)	$	(355,626	)	$	594,166		$	(334,661	)	$	(2,316	)	$	(97,360	)
Cumulative effect adjustment	—	—		—		—			—			(15,446		)	—			(15,446		)
Net income	—	—		—		—			—			32,190			—			32,190
Other comprehensive income	—	—		—		—			—			—			4,857			4,857
Share-based compensation on equity classified awards, net	—	—		—		—			2,128			—			—			2,128
Purchase of treasury stock	—	—		(2,437	)	(37,407		)	—			—			—			(37,407		)
Issuance of common stock for share-based compensation	447	5		—		—			(5		)	—			—			—
Exercise of common stock options	306	3		—		—			1,055			—			—			1,058
Balance, September 26, 2018	108,493	$	1,085	(45,588	)	$	(393,033	)	$	597,344		$	(317,917	)	$	2,541		$	(109,980	)

See accompanying notes

7

Denny’s Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Quarters Ended
	September 25, 2019			September 26, 2018
	(In thousands)
Cash flows from operating activities:
Net income	$	98,851		$	32,190
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization	15,619			19,965
Operating (gains), losses and other charges, net	(85,459		)	1,615
Amortization of deferred financing costs	456			455
Gains on investments	(179		)	—
Gains on early extinguishments of debt and leases	(157		)	(159		)
Deferred income tax expense	9,594			5,044
Share-based compensation	7,142			3,661
Changes in assets and liabilities:
Receivables	8,095			3,582
Inventories	1,525			83
Other current assets	(168		)	1,292
Other assets	(3,081		)	(565		)
Operating lease assets/liabilities	(577		)	—
Accounts payable	(9,411		)	(11,948		)
Accrued salaries and vacations	(6,224		)	(858		)
Accrued taxes	(524		)	1,974
Other accrued liabilities	(5,544		)	(7,733		)
Other noncurrent liabilities	2,068			(2,339		)
Net cash flows provided by operating activities	32,026			46,259
Cash flows from investing activities:
Capital expenditures	(12,646		)	(17,294		)
Acquisition of restaurants and real estate	(9,456		)	(10,416		)
Deposits on acquisitions of real estate	(1,538		)	—
Proceeds from sales of restaurants, real estate and other assets	118,370			969
Investment purchases	(1,300		)	(1,709		)
Collections on notes receivable	3,027			2,478
Issuance of notes receivable	(822		)	(2,525		)
Net cash flows provided by (used in) investing activities	95,635			(28,497		)
Cash flows from financing activities:
Revolver borrowings	102,500			91,000
Revolver payments	(176,000		)	(72,000		)
Long-term debt payments	(2,044		)	(2,429		)
Proceeds from exercise of stock options	966			1,058
Tax withholding on share-based payments	(3,206		)	(1,714		)
Purchase of treasury stock	(50,649		)	(37,108		)
Net bank overdrafts	(2,234		)	319
Net cash flows used in financing activities	(130,667		)	(20,874		)
Decrease in cash and cash equivalents	(3,006		)	(3,112		)
Cash and cash equivalents at beginning of period	5,026			4,983
Cash and cash equivalents at end of period	$	2,020		$	1,871

See accompanying notes

8

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 25, 2019, the Denny's brand consisted of 1,706 restaurants, 1,629 of which were franchised/licensed restaurants and 77 of which were company operated.

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 26, 2018 which are contained in our Annual Report on Form 10-K for the fiscal year ended December 26, 2018. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire fiscal year ending December 25, 2019.

Note 2.     Summary of Significant Accounting Policies

Newly Adopted Accounting Standards

Effective December 27, 2018, the first day of fiscal 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The new guidance established a right-of-use ("ROU") model that requires lessees to recognize a ROU asset and a lease liability for all leases with terms greater than 12 months. Lessees classify leases as financing or operating. The guidance requires lessors to classify leases as sales-type, direct financing or operating. We elected to apply the modified retrospective transition approach as the date of initial application without restating comparative period financial statements. Results for reporting periods beginning after December 26, 2018 are presented under Topic 842. Prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Accounting Standards Codification 840, "Leases (Topic 840)". Our transition to Topic 842 represents a change in accounting principle.

The new guidance provided a number of optional practical expedients in transition. We elected the package of practical expedients that permitted us not to reassess our prior conclusions regarding lease identification, lease classification or initial direct costs. In addition, we did not elect the practical expedient which would have permitted us to use hindsight in evaluating our leases, nor did we elect the land easement practical expedient. In preparation for adoption, we implemented a new lease management system.

Upon adoption of Topic 842, we recorded operating lease liabilities of $101.3 million and ROU assets of $94.1 million related to existing operating leases. In addition, we recorded a cumulative effect adjustment increasing opening deficit by $0.4 million and deferred tax assets by $0.1 million. The lease liabilities were based on the present value of remaining rental payments under previous leasing standards for existing operating leases primarily related to real estate leases. Exit cost and straight-line lease liabilities that existed at the adoption date were reclassified against the ROU assets upon adoption. The amount recorded to opening deficit represents the initial impairment of ROU assets, net of the deferred tax impact.

See Note 3 for further information about our transition to Topic 842 and the required disclosures.

9

Accounting Standards to be Adopted

In June 2016, the Financial Accounting Standards Board issued 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) with early adoption permitted for annual and interim periods beginning after December 15, 2018 (our fiscal 2019). We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

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.     Leases

Lessee

We lease certain real estate and equipment for our restaurants and support facilities. At contract inception, we determine whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. We recognize a lease liability and an ROU asset at the lease commencement date.

For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases, and is subsequently measured at amortized cost using the effective interest method.

Operating lease ROU assets are initially and subsequently measured throughout the lease term at the carrying amount of the lease liability adjusted for initial direct costs, prepayments, accrued payments and lease incentives, if any. Lease cost is recognized on a straight-line basis over the lease term. Operating lease payments are classified as cash flows for operating activities with ROU asset amortization and the change in the lease liability combined as "Operating lease assets/liabilities" in the reconciliation of net income to net cash flows provided by operating activities in the Consolidated Statement of Cash Flows. Finance lease ROU assets are initially measured at cost and subsequently amortized on a straight-line basis over the lesser of the useful life or the lease term. Finance lease payments are classified as cash flows used in financing activities in the Consolidated Statement of Cash Flows. Operating and finance lease ROU assets are assessed for impairment using the long-lived assets impairment guidance.

The new lease guidance provides practical expedients and accounting elections for our ongoing accounting after adoption. We elected the practical expedient to not separate nonlease components (such as common area maintenance) from lease components in regard to all leases and the portfolio approach in applying the discount rate to our leases.

Key estimates and judgments include how we determine (1) lease payments, (2) lease term and (3) the discount rate used to discount the unpaid lease payments to present value.

We have certain lease agreements structured with both a fixed base rent and a contingent rent based on a percentage of sales over contractual levels, others with only contingent rent based on a percentage of sales and some with a fixed base rent adjusted periodically for inflation or changes in fair market rent rate. Contingent rent is recognized as sales occur. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The exercise of lease renewal options is at our sole discretion, except in certain sublease situations in which we have determined that it is reasonably certain that one or more options will be exercised, including where the exercise of a sublease option compels us to exercise the renewal option of the underlying master lease. Renewal option periods are included in the measurement of lease ROU asset and lease liability where the exercise is reasonably certain to occur. Initial terms of real estate leases generally range from 10 to 20 years, exclusive of options to renew, which are typically for five year periods. Leases of equipment consist primarily of restaurant equipment, computer equipment and vehicles. Initial terms of equipment leases generally range from three to five years.

The discount rate used to determine the present value of the lease payments is our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as we generally cannot determine the interest rate implicit in the lease.

10

Lessor

We lease or sublease certain restaurant properties to our franchisees and occasionally to third parties. The lease descriptions, terms, variable lease payments and renewal options are the same as the lessee leases described above. Similar to our lessee accounting, we elected the lessor practical expedient to not separate nonlease components from lease components in regard to all leases.

The components of lease costs were as follows:

		Quarter Ended			Three Quarters Ended
	Classification	September 25, 2019			September 25, 2019
		(In thousands)
Lease costs
Finance lease costs:
Amortization of right-of-use assets	Depreciation and amortization	$	592		$	2,473
Interest on lease liabilities	Interest expense, net	906			3,740
Operating lease costs:
Operating lease costs - company	Occupancy	1,811			6,824
Operating lease costs - franchise	Costs of franchise and license revenue	4,850			11,926
Operating lease costs - general and administrative	General and administrative expenses	27			80
Variable lease costs:
Variable lease costs - company	Occupancy	1,324			4,992
Variable lease costs - franchise	Costs of franchise and license revenue	1,924			4,862
Variable lease costs - general and administrative	General and administrative expenses	15			25
Variable lease costs - closed stores	Restructuring charges and exit costs	—			55
Sublease income	Franchise and license revenue	(8,156		)	(20,164		)
Total lease costs		$	3,293		$	14,813

Lease terms and discount rates were as follows:

	September 25, 2019
Weighted-average remaining lease term (in years)
Finance leases	9.6
Operating leases	10.8
Weighted-average discount rate
Finance leases	23.5	%
Operating leases	6.1	%

The components of lease income were as follows:

		Quarter Ended		Three Quarters Ended
	Classification	September 25, 2019		September 25, 2019
		(In thousands)
Lease income
Operating lease income - franchise	Franchise and license revenue	$	7,963	$	19,234
Operating lease income - closed stores	Restructuring charges and exit costs	56		188
Variable lease income - franchise	Franchise and license revenue	2,770		7,170
Variable lease income - closed stores	Restructuring charges and exit costs	13		37
Total lease income		$	10,802	$	26,629

11

Cash and supplemental noncash amounts were as follows:

	Quarter Ended		Three Quarters Ended
	September 25, 2019		September 25, 2019
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	906	$	3,740
Operating cash flows from operating leases	6,816		19,569
Financing cash flows from finance leases	497		2,044
Right-of-use assets obtained in exchange for new finance lease liabilities	—		305
Right-of-use assets obtained in exchange for new operating lease liabilities	31,050		58,581

Maturities of lease liabilities and receipts in accordance with Topic 842 as of September 25, 2019 were as follows:

	Lease Liabilities				Lease Receipts
	Finance		Operating		Operating
	(In thousands)
Remainder of 2019	$	1,256	$	6,543	$	8,225
2020	4,839		24,749		31,029
2021	4,571		22,629		28,145
2022	4,287		20,469		25,756
2023	3,769		17,875		22,682
Thereafter	25,672		120,696		155,741
Total undiscounted cash flows	44,394		212,961		$	271,578
Less: interest	27,175		59,078
Present value of lease liabilities	17,219		153,883
Less: current lease liabilities	1,812		16,718
Long-term lease liabilities	$	15,407	$	137,165

Maturities of lease liabilities in accordance with Topic 840 as of December 26, 2018 were as follows:

	Commitments				Lease Receipts
	Capital		Operating		Operating
	(In thousands)
2019	$	9,271	$	23,504	$	21,001
2020	8,664		20,161		18,493
2021	8,010		17,316		16,573
2022	7,320		14,646		14,887
2023	6,451		11,881		12,932
Thereafter	33,670		49,004		65,273
Total	73,386		$	136,512	$	149,159
Less imputed interest	42,795
Present value of capital lease obligations	$	30,591

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Note 4.     Refranchisings and Acquisitions

Refranchisings

The following table summarizes the activity related to our refranchising and development strategy. Gains on the sales of company restaurants and real estate are included as a component of operating (gains), losses and other charges, net in our Condensed Consolidated Statements of Income. See Note 5.

	Quarter Ended					Three Quarters Ended
	September 25, 2019			September 26, 2018		September 25, 2019			September 26, 2018
	(Dollars in thousands)
Restaurants sold to franchisees	56			—		96			—
Gains on sales of company restaurants:
Cash proceeds	$	68,774		$	—	$	107,611		$	—
Receivables	2,976			—		3,446			—
Less: Property sold	(17,759		)	—		(27,984		)	—
Less: Goodwill	(1,705		)	—		(2,709		)	—
Less: Intangibles	(579		)	—		(2,225		)	—
Less: Deferred gain	(1,350		)	—		(1,350		)	—
Total gains of sales of company restaurants	$	50,357		$	—	$	76,789		$	—
Real estate parcels sold	2			—		6			—
Gains on sales of real estate:
Cash proceeds	$	2,142		$	—	$	10,680		$	—
Noncash consideration	—			—		3,000			—
Less: Property sold	(740		)	—		(1,686		)	—
Less: Other assets	(114		)	—		(120		)	—
Total gains on sales of real estate	$	1,288		$	—	$	11,874		$	—

In addition to the cash proceeds received on the sale of real estate during the first quarter, we also recorded additional noncash consideration for the fair value of restaurant space we expect to receive within a building being developed by the buyer of the real estate. The fair value of this space was determined using a market approach with Level 2 inputs based on third party appraisals of fair values of other similar properties. The $3.0 million of noncash consideration is recorded as a component of other noncurrent assets in our Condensed Consolidated Balance Sheets.

As of September 25, 2019, we have recorded assets held for sale at their carrying amount of $1.4 million (comprised of property of $1.2 million and goodwill of $0.2 million) related to seven company restaurants. There were $0.7 million in assets held for sale as of December 26, 2018 related to 3 company restaurants and 1 piece of real estate.

Acquisitions

We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on Level 3 fair value estimates. The following table summarizes our restaurant and real estate acquisition activity:

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	Quarter Ended				Three Quarters Ended
	September 25, 2019		September 26, 2018		September 25, 2019		September 26, 2018
	(Dollars in thousands)
Restaurants acquired from franchisees	—		—		—		6
Purchase price allocation:
Reacquired franchise rights	$	—	$	—	$	—	$	5,434
Property	—		—		—		1,121
Goodwill	—		—		—		1,574
Total purchase price	$	—	$	—	$	—	$	8,129
Financing leases recorded	$	—	$	—	$	—	$	2,409
Real estate parcels acquired	2		—		4		1
Total purchase price	$	4,750	$	—	$	9,456	$	1,787

Note 5.     Operating (Gains), Losses and Other Charges, Net

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

	Quarter Ended						Three Quarters Ended
	September 25, 2019			September 26, 2018			September 25, 2019			September 26, 2018
	(In thousands)
Gains on sales of assets and other, net	$	(51,183	)	$	(695	)	$	(87,497	)	$	(759	)
Restructuring charges and exit costs	1,092			48			2,038			816
Impairment charges	—			1,440			—			1,558
Operating (gains), losses and other charges, net	$	(50,091	)	$	793		$	(85,459	)	$	1,615

Gains on sales of assets and other, net were primarily the result of sales of company restaurants and real estate as part of our refranchising and development strategy. See Note 4.

Restructuring charges and exit costs consisted of the following: 

	Quarter Ended				Three Quarters Ended
	September 25, 2019		September 26, 2018		September 25, 2019		September 26, 2018
	(In thousands)
Exit costs	$	20	$	48	$	194	$	347
Severance and other restructuring charges	1,072		—		1,844		469
Total restructuring charges and exit costs	$	1,092	$	48	$	2,038	$	816

Exit cost liabilities were $0.1 million and $1.2 million as of September 25, 2019 and December 26, 2018, respectively. As a result of the adoption of Topic 842, exit cost liabilities related to lease costs are now included as a component of operating lease liabilities in our Condensed Consolidated Balance Sheets. See Note 3.

As of September 25, 2019 and December 26, 2018, we had accrued severance and other restructuring charges of $1.1 million and $0.6 million, respectively. The balance as of September 25, 2019 is expected to be paid during the next 12 months.

Impairment charges for the quarter and three quarters ended September 26, 2018 primarily resulted from the impairment of an underperforming unit.

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Note 6.     Receivables

Receivables consisted of the following:

	September 25, 2019			December 26, 2018
	(In thousands)
Receivables, net:
Trade accounts receivable from franchisees	$	12,054		$	11,459
Financing receivables from franchisees	4,985			3,211
Vendor receivables	1,386			4,016
Credit card receivables	876			5,955
Other	892			1,942
Allowance for doubtful accounts	(290		)	(300		)
Total receivables, net	$	19,903		$	26,283
Other noncurrent assets:
Financing receivables from franchisees and other	$	450		$	1,528

Note 7.    Goodwill and Other Intangible Assets

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

	(In thousands)
Balance, December 26, 2018	$	39,781
Adjustments related to the sale of restaurants and reclassifications to assets held for sale	(2,897		)
Balance, September 25, 2019	$	36,884

Other intangible assets consisted of the following:

	September 25, 2019				December 26, 2018
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Intangible assets with indefinite lives:
Trade names	$	44,087	$	—	$	44,087	$	—
Liquor licenses	120		—		166		—
Intangible assets with definite lives:
Reacquired franchise rights	16,218		5,834		19,933		5,119
Intangible assets, net	$	60,425	$	5,834	$	64,186	$	5,119

The decreases in goodwill and reacquired franchise rights during the current year were the result of sales of company restaurants and reclassifications to assets held for sale as part of our refranchising and development strategy. See Note 4.

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Note 8.     Other Current Liabilities

Other current liabilities consisted of the following:

	September 25, 2019		December 26, 2018
	(In thousands)
Accrued payroll	$	17,279	$	23,395
Accrued insurance, primarily current portion of liability for insurance claims	6,884		7,323
Accrued taxes	7,143		7,667
Accrued advertising	4,500		7,413
Gift cards	4,272		6,546
Other	11,540		9,446
Other current liabilities	$	51,618	$	61,790

Note 9.     Fair Value of Financial Instruments

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

 

	Total			Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(In thousands)
Fair value measurements as of September 25, 2019:
Deferred compensation plan investments (1)	$	12,661		$	12,661	$	—		$	—
Interest rate swaps, net (2)	(55,848		)	—		(55,848		)	—
Investments (3)	3,188			—		3,188			—
Total	$	(39,999	)	$	12,661	$	(52,660	)	$	—
Fair value measurements as of December 26, 2018:
Deferred compensation plan investments (1)	$	11,235		$	11,235	$	—		$	—
Interest rate swaps, net (2)	(4,475		)	—		(4,475		)	—
Investments (3)	1,709			—		1,709			—
Total	$	8,469		$	11,235	$	(2,766	)	$	—

(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. The key inputs for the valuation models are quoted market prices, interest rates and forward yield curves. See Note 10 for details on the interest rate swaps.

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

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are deemed to approximate fair value due to the immediate or short-term maturity of these instruments. See Note 4 for the disclosures related to the fair value of assets held for sale and acquired franchise restaurants. The fair value of our senior secured revolver approximates its carrying value since it is a variable rate facility (Level 2).

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Note 10.     Long-Term Debt

Denny's and certain of its subsidiaries have a credit facility consisting of a five-year $400 million senior secured revolver (with a $30 million letter of credit sublimit). The credit facility includes an accordion feature that would allow us to increase the size of the revolver to $450 million. As of September 25, 2019, we had outstanding revolver loans of $213.0 million and outstanding letters of credit under the senior secured revolver of $20.6 million. These balances resulted in availability of $166.4 million under the credit facility. Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 4.18% and 4.43% as of September 25, 2019 and December 26, 2018, respectively. Taking into consideration our interest rate swaps, the weighted-average interest rate of outstanding revolver loans was 4.44% and 4.48% as of September 25, 2019 and December 26, 2018, respectively.

A commitment fee, which is based on our consolidated leverage ratio, is paid on the unused portion of the credit facility and was 0.30% as of September 25, 2019. Borrowings under the credit facility bear a tiered interest rate, also based on our consolidated leverage ratio, and was set at LIBOR plus 2.00% as of September 25, 2019. The maturity date for the credit facility is October 26, 2022.

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). It includes negative covenants that are usual for facilities and transactions of this type. The credit facility also includes certain financial covenants with respect to a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. We were in compliance with all financial covenants as of September 25, 2019.

Interest Rate Hedges

We have interest rate swaps to hedge a portion of the forecasted cash flows of our floating rate debt. We 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.

Under the interest rate swaps, we pay a fixed rate on the notional amount in addition to the current interest rate as determined by our consolidated leverage ratio in effect at the time. A summary of our interest rate swaps as of September 25, 2019 is as follows:

Trade Date	Effective Date	Maturity Date	Notional Amount			Fixed Rate
			(In thousands)
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	%
February 15, 2018	March 31, 2020	December 31, 2033	80,000		(1)	3.19	%

(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.

As of September 25, 2019, the fair value of the interest rate swaps was a liability of $55.8 million, which is recorded as a component of other noncurrent liabilities in our Condensed Consolidated Balance Sheets. See Note 16 for the amounts recorded in accumulated other comprehensive loss related to the interest rate swaps.

Note 11.     Revenues

Our revenues are derived primarily from two sales channels, which we operate as 1 segment: company restaurants and franchised and licensed restaurants. The following table disaggregates our revenue by sales channels and types of goods or services:

17

	Quarter Ended				Three Quarters Ended
	September 25, 2019		September 26, 2018		September 25, 2019		September 26, 2018
	(Dollars in thousands)
Company restaurant sales	$	63,582	$	103,609	$	257,574	$	307,543
Franchise and license revenue:
Royalties	27,830		25,518		79,742		75,875
Advertising revenue	20,756		19,546		59,582		58,386
Initial and other fees	1,356		1,415		4,250		4,642
Occupancy revenue	10,734		7,935		26,405		24,184
Franchise and license revenue	60,676		54,414		169,979		163,087
Total operating revenue	$	124,258	$	158,023	$	427,553	$	470,630

Balances related to contracts with customers consist of receivables, deferred franchise revenue and deferred gift card revenue. See Note 6 for details on our receivables.

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

	(In thousands)
Balance, December 26, 2018	$	20,538
Fees received from franchisees	4,796
Revenue recognized (1)	(2,077		)
Balance, September 25, 2019	23,257
Less current portion included in other current liabilities	2,182
Deferred franchise revenue included in other noncurrent liabilities	$	21,075

(1) Of this amount $1.8 million was included in the deferred franchise revenue balance as of December 26, 2018.

As of September 25, 2019, the deferred franchise revenue expected to be recognized in the future is as follows:

	(In thousands)
2019	$	583
2020	2,204
2021	2,017
2022	1,908
2023	1,830
Thereafter	14,715
Deferred franchise revenue	$	23,257

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 25, 2019 and December 26, 2018 was $4.3 million and $6.5 million, respectively. During the three quarters ended September 25, 2019, we recognized revenue of $1.8 million from gift card redemptions at company restaurants.

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Note 12.     Share-Based Compensation

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

	Quarter Ended				Three Quarters Ended
	September 25, 2019		September 26, 2018		September 25, 2019		September 26, 2018
	(In thousands)
Performance share awards	$	1,957	$	902	$	6,418	$	2,922
Restricted stock units for board members	219		198		724		739
Total share-based compensation	$	2,176	$	1,100	$	7,142	$	3,661

Performance Share Units

During the three quarters ended September 25, 2019, we granted certain employees 0.3 million performance share units with a grant date fair value of $20.47 per share that vest based on the total shareholder return (“TSR”) of our common stock compared to the TSRs of a group of peer companies and 0.3 million performance share units with a grant date fair value of $17.58 per share that vest based on our Adjusted EPS growth rate versus plan, as defined under the terms of the award. The performance period for these performance share units is the three year fiscal period beginning December 27, 2018 and ending December 29, 2021. They will vest and be earned (from 0% to 150% of the target award for each such increment) at the end of the performance period.

During the three quarters ended September 25, 2019, we issued 0.4 million shares of common stock related to vested performance share units. In addition 0.4 million shares of common stock were deferred and 0.2 million shares of common stock were withheld in lieu of taxes related to vested performance share units.

As of September 25, 2019, we had approximately $14.3 million of unrecognized compensation cost related to all unvested performance share awards outstanding, which have a weighted average remaining contractual term of 1.9 years.

Restricted Stock Units for Board Members

During the three quarters ended September 25, 2019, we granted less than 0.1 million restricted stock units (which are equity classified) with a weighted average grant date fair value of $19.44 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 equal annual installments commencing after termination of service as a member of our Board. During the three quarters ended September 25, 2019, 0.1 million restricted stock units were converted into shares of common stock. As of September 25, 2019, we had approximately $0.5 million of unrecognized compensation cost related to all unvested restricted stock unit awards outstanding, which have a weighted average remaining contractual term of 0.6 years.

Note 13.     Income Taxes

The effective income tax rate was 23.7% and 21.3% for the quarter and three quarters ended September 25, 2019, respectively, compared to 20.6% and 18.3% for the prior year periods. The 2019 quarterly and year-to-date rates included the impact of excess tax benefits relating to share-based compensation of 1.0% and 1.8%, respectively. The 2018 quarterly and year-to-date rates included the impact of excess tax benefits relating to share-based compensation of 0.5% and 3.4%, respectively. In addition, during the second quarter of 2019, we completed an Internal Revenue Service federal income tax audit of the 2016 tax year. Upon completion of this audit, revaluations of certain tax positions were performed and as a result, we recognized a net benefit of 1.6% for the 2019 year-to-date period.

19

Note 14.     Net Income Per Share

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

	Quarter Ended				Three Quarters Ended
	September 25, 2019		September 26, 2018		September 25, 2019		September 26, 2018
	(In thousands, except for per share amounts)
Net income	$	49,122	$	10,805	$	98,851	$	32,190
Weighted average shares outstanding - basic	59,430		63,246		60,457		63,774
Effect of dilutive share-based compensation awards	1,759		2,276		1,913		2,348
Weighted average shares outstanding - diluted	61,189		65,522		62,370		66,122
Basic net income per share	$	0.83	$	0.17	$	1.64	$	0.50
Diluted net income per share	$	0.80	$	0.16	$	1.58	$	0.49
Anti-dilutive share-based compensation awards	274		—		226		471

Note 15.     Supplemental Cash Flow Information

	Three Quarters Ended
	September 25, 2019		September 26, 2018
	(In thousands)
Income taxes paid, net	$	17,853	$	2,347
Interest paid	$	14,393	$	14,349
Noncash investing and financing activities:
Issuance of common stock, pursuant to share-based compensation plans	$	7,522	$	4,671
Noncash consideration received in connection with the sale of real estate	$	3,000	$	—
Execution of finance leases	$	305	$	2,850
Treasury stock payable	$	228	$	419
Receivables in connection with disposition of property	$	3,446	$	—
Insurance proceeds receivable	$	48	$	19

Note 16.     Shareholders' Deficit

Share Repurchase

Our credit facility permits the purchase of Denny’s stock and the payment of cash dividends subject to certain limitations. In October 2017, our Board of Directors approved a share repurchase program authorizing us to repurchase up to $200 million of our common stock (in addition to prior authorizations). Under this program, we may, from time to time, purchase shares in the open market (including pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Securities Exchange Act of 1934, as amended) or in privately negotiated transactions, subject to market and business conditions.

In November 2018, as part 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 1.1 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.

20

During the three quarters ended September 25, 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.

In addition to the settlement of the ASR, during the three quarters ended September 25, 2019, we repurchased a total of 2.6 million shares of our common stock for approximately $50.8 million. This brings the total amount repurchased under the current repurchase program to 7.2 million shares of our common stock for approximately $122.4 million, leaving approximately $77.6 million that can be used to repurchase our common stock under this program as of September 25, 2019. Repurchased shares are included as treasury stock in our Condensed Consolidated Balance Sheets and our Condensed Consolidated Statement of Shareholders' Deficit.

Accumulated Other Comprehensive Loss

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

	Defined Benefit Plans			Derivatives			Accumulated Other Comprehensive Loss
	(In thousands)
Balance as of December 26, 2018	$	(827	)	$	(3,319	)	$	(4,146	)
Amortization of net loss (1)	65			—			65
Net change in fair value of derivatives	—			(51,412		)	(51,412		)
Reclassification of derivatives to interest expense, net (2)	—			40			40
Income tax (expense) benefit related to items of other comprehensive loss	(17		)	13,563			13,546
Balance as of September 25, 2019	$	(779	)	$	(41,128	)	$	(41,907	)

(1) Before-tax amount related to our defined benefit plans that was reclassified from accumulated other comprehensive loss and included as a component of pension expense within general and administrative expenses in our Condensed Consolidated Statements of Income during the three quarters ended September 25, 2019.

(2) Amounts reclassified from accumulated other comprehensive loss into income represent payments either received from or made to the counterparty for the effective portions of the interest rate swaps. These amounts are included as a component of interest expense, net in our Condensed Consolidated Statements of Income. See Note 10 for additional details.

Note 17.     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 25, 2019, no events had occurred that caused us to make payments under these guarantees. There were $1.3 million and $2.5 million of loans outstanding under these programs as of September 25, 2019 and December 26, 2018, respectively. As of September 25, 2019, the maximum amount payable under the loan guarantees was $0.8 million. As a result of these guarantees, we have recorded liabilities of less than $0.1 million as of both September 25, 2019 and December 26, 2018, which are included as a component of other noncurrent liabilities in our Condensed Consolidated Balance Sheets and other nonoperating expense in our Condensed Consolidated Statements of Income.

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 the Company's consolidated results of operations or financial position. 

21

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

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements reflect our best judgment based on factors currently known and are intended to speak only as of the date such statements are made. Forward-looking statements involve risks, uncertainties, and other factors which may cause our actual performance to be materially different from the performance indicated or implied by such statements. You should consider our forward-looking statements in light of the risks discussed under Part I, Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K, as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the United States Securities and Exchange Commission. While we may elect to update forward-looking statements at some point in the future, we expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Factors Impacting Comparability

Impact of New Leases Standard

Upon adoption of Topic 842, we recorded operating lease liabilities of $101.3 million and ROU assets of $94.1 million related to existing operating leases. In addition, we recorded a cumulative effect adjustment increasing opening deficit by $0.4 million and deferred tax assets by $0.1 million. The lease liabilities were based on the present value of remaining rental payments under current leasing standards for existing operating leases primarily related to real estate leases. Exit cost and straight-line lease liabilities that existed at the adoption date were reclassified against the ROU assets upon adoption. The amount recorded to opening deficit represents the initial impairment of ROU assets, net of the deferred tax impact.

We elected to apply the modified retrospective transition approach as of the effective date as the date of initial application without restating comparative period financial statements (the “effective date method”). Results for reporting periods beginning after December 27, 2018 are presented under Topic 842. Prior period amounts were not adjusted and continue to be reported in accordance with our historical accounting under Topic 840. See Note 2 and Note 3 for information on the implementation of Topic 842 and its impact on our Condensed Consolidated Financial Statements.

22

Statements of Income

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

	Quarter Ended										Three Quarters Ended
	September 25, 2019					September 26, 2018					September 25, 2019					September 26, 2018
	(Dollars in thousands)
Revenue:
Company restaurant sales	$	63,582		51.2	%	$	103,609		65.6	%	$	257,574		60.2	%	$	307,543		65.3	%
Franchise and license revenue	60,676			48.8	%	54,414			34.4	%	169,979			39.8	%	163,087			34.7	%
Total operating revenue	124,258			100.0	%	158,023			100.0	%	427,553			100.0	%	470,630			100.0	%
Costs of company restaurant sales, excluding depreciation and amortization (a):
Product costs	15,603			24.5	%	25,303			24.4	%	62,871			24.4	%	75,292			24.5	%
Payroll and benefits	23,777			37.4	%	41,041			39.6	%	100,475			39.0	%	123,332			40.1	%
Occupancy	4,301			6.8	%	6,083			5.9	%	15,583			6.0	%	17,165			5.6	%
Other operating expenses	10,625			16.7	%	15,419			14.9	%	39,320			15.3	%	45,490			14.8	%
Total costs of company restaurant sales	54,306			85.4	%	87,846			84.8	%	218,249			84.7	%	261,279			85.0	%
Costs of franchise and license revenue, excluding depreciation and amortization (a)	31,136			51.3	%	28,174			51.8	%	87,065			51.2	%	85,779			52.6	%
General and administrative expenses	16,395			13.2	%	15,981			10.1	%	53,659			12.6	%	48,138			10.2	%
Depreciation and amortization	4,338			3.5	%	6,760			4.3	%	15,619			3.7	%	19,965			4.2	%
Operating (gains), losses and other charges, net	(50,091		)	(40.3	)%	793			0.5	%	(85,459		)	(20.0	)%	1,615			0.3	%
Total operating costs and expenses, net	56,084			45.1	%	139,554			88.3	%	289,133			67.6	%	416,776			88.6	%
Operating income	68,174			54.9	%	18,469			11.7	%	138,420			32.4	%	53,854			11.4	%
Interest expense, net	4,188			3.4	%	5,314			3.4	%	14,977			3.5	%	15,324			3.3	%
Other nonoperating income, net	(415		)	(0.3	)%	(460		)	(0.3	)%	(2,111		)	(0.5	)%	(877		)	(0.2	)%
Income before income taxes	64,401			51.8	%	13,615			8.6	%	125,554			29.4	%	39,407			8.4	%
Provision for income taxes	15,279			12.3	%	2,810			1.8	%	26,703			6.2	%	7,217			1.5	%
Net income	$	49,122		39.5	%	$	10,805		6.8	%	$	98,851		23.1	%	$	32,190		6.8	%
Other Data:
Company average unit sales	$	640				$	582				$	1,820				$	1,716
Franchise average unit sales	$	421				$	409				$	1,242				$	1,207
Company equivalent units (b)	99					178					141					179
Franchise equivalent units (b)	1,603					1,536					1,560					1,541
Company same-store sales increase (decrease) (c)(d)	(0.2		)%			2.1		%			2.1		%			1.7		%
Domestic franchise same-store sales increase (c)(d)	1.2		%			0.8		%			2.0		%			0.4		%

(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 the same period in the prior year.

(d) Prior year amounts have not been restated for 2019 comparable units.

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Unit Activity

	Quarter Ended				Three Quarters Ended
	September 25, 2019		September 26, 2018		September 25, 2019		September 26, 2018
Company restaurants, beginning of period	133		180		173		178
Units opened	—		1		—		1
Units acquired from franchisees	—		—		—		6
Units sold to franchisees	(56	)	—		(96	)	—
Units closed	—		—		—		(4	)
End of period	77		181		77		181
Franchised and licensed restaurants, beginning of period	1,569		1,540		1,536		1,557
Units opened	13		6		21		24
Units purchased from Company	56		—		96		—
Units acquired by Company	—		—		—		(6	)
Units closed	(9	)	(12	)	(24	)	(41	)
End of period	1,629		1,534		1,629		1,534
Total restaurants, end of period	1,706		1,715		1,706		1,715

Company Restaurant Operations

During the quarter ended September 25, 2019, company restaurant sales decreased $40.0 million, or 38.6%, primarily resulting from 79 fewer equivalent company restaurants as compared to the prior year period and a 0.2% decrease in company same-store sales. During the three quarters ended September 25, 2019, company restaurant sales decreased $50.0 million, or 16.2%, primarily resulting from 38 fewer equivalent company restaurants as compared to the prior year period, partially offset by a 2.1% increase in company same-store sales. The decrease in equivalent company restaurants for both periods was the result of our refranchising and development strategy.

Total costs of company restaurant sales as a percentage of company restaurant sales increased to 85.4% for the quarter from 84.8% in the prior year period and decreased to 84.7% year-to-date from 85.0% in the prior year period.

Product costs remained relatively constant at 24.5% for the quarter and 24.4% year-to-date compared to 24.4% and 24.5%, respectively, for the prior year periods as leverage gained from increased pricing offset impacts of commodity increases.

Payroll and benefits were 37.4% for the quarter and 39.0% year-to-date compared to 39.6% and 40.1%, respectively, in the prior year periods. The decrease for the quarter was primarily due to a 1.1 percentage point decrease in labor and a 0.7 percentage point decrease in payroll taxes and fringe benefits resulting from the leveraging benefit of refranchising restaurants. The quarter also benefited from a 0.5 percentage point decrease in incentive compensation. These decreases were partially offset by a 0.2 percentage point increase in workers' compensation costs related to claims development. The quarter ended September 25, 2019 included $0.2 million in favorable workers' compensation experience compared to $0.7 million of favorable experience in the prior year period. The year-to-date decrease was primarily due to a 0.6 percentage point decrease in payroll taxes and fringe benefits and a 0.3 percentage point decrease in labor resulting from the impact of refranchising restaurants and a 0.2 percentage point decrease in workers' compensation costs related to claims development. The three quarters ended September 25, 2019 included $0.7 million in favorable workers' compensation experience, as compared to $0.6 million of favorable experience in the prior year period.

Occupancy costs were 6.8% for the quarter and 6.0% year-to-date compared to 5.9% and 5.6%, respectively, for the prior year periods. The increases for the quarter and year-to-date periods were related to increases in property insurance costs, unfavorable general liability experience and the impact of refranchising restaurants where we own the real estate. Each of the quarters ended September 25, 2019 and September 26, 2018 included $0.4 million in unfavorable general liability experience. The three quarters ended September 25, 2019 included $0.5 million in unfavorable general liability experience compared to $0.3 million of unfavorable experience in the prior year period.

24

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

	Quarter Ended								Three Quarters Ended
	September 25, 2019				September 26, 2018				September 25, 2019				September 26, 2018
	(Dollars in thousands)
Utilities	$	2,438	3.8	%	$	3,926	3.8	%	$	8,916	3.5	%	$	10,690	3.5	%
Repairs and maintenance	1,774		2.8	%	1,870		1.8	%	5,742		2.2	%	5,647		1.8	%
Marketing	2,411		3.8	%	3,791		3.7	%	9,357		3.6	%	11,267		3.7	%
Other direct costs	4,002		6.3	%	5,832		5.6	%	15,305		5.9	%	17,886		5.8	%
Other operating expenses	$	10,625	16.7	%	$	15,419	14.9	%	$	39,320	15.3	%	$	45,490	14.8	%

Increases in repairs and maintenance as a percentage of company restaurant sales were primarily related to the sale of company restaurants as part of our refranchising and development strategy. The increase in other direct costs as a percentage of sales for the quarter and year-to-date was primarily the result of unfavorable legal settlement costs.

Franchise Operations

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

	Quarter Ended								Three Quarters Ended
	September 25, 2019				September 26, 2018				September 25, 2019				September 26, 2018
	(Dollars in thousands)
Royalties	$	27,830	45.9	%	$	25,518	46.9	%	$	79,742	46.9	%	$	75,875	46.5	%
Advertising revenue	20,756		34.2	%	19,546		35.9	%	59,582		35.1	%	58,386		35.8	%
Initial and other fees	1,356		2.2	%	1,415		2.6	%	4,250		2.5	%	4,642		2.8	%
Occupancy revenue	10,734		17.7	%	7,935		14.6	%	26,405		15.5	%	24,184		14.8	%
Franchise and license revenue	$	60,676	100.0	%	$	54,414	100.0	%	$	169,979	100.0	%	$	163,087	100.0	%
Advertising costs	$	20,757	34.2	%	$	19,546	35.9	%	$	59,583	35.1	%	$	58,386	35.8	%
Occupancy costs	7,257		12.0	%	5,585		10.3	%	$	18,018	10.6	%	$	17,059	10.5	%
Other direct costs	3,122		5.1	%	3,043		5.6	%	9,464		5.6	%	10,334		6.3	%
Costs of franchise and license revenue	$	31,136	51.3	%	$	28,174	51.8	%	$	87,065	51.2	%	$	85,779	52.6	%

Franchise and license revenue increased $6.3 million, or 11.5%, for the quarter and $6.9 million, or 4.2%, year-to-date compared to the prior year periods. Royalties increased $2.3 million, or 9.1%, for the quarter primarily resulting from a 1.2% increase in domestic same-store sales and a 67 equivalent unit increase from the impact of our refranchising and development strategy. Year-to-date royalties increased $3.9 million, or 5.1%, primarily resulting from a 2.0% increase in domestic same-store sales and a 19 equivalent unit increase.

Advertising revenue increased $1.2 million, or 6.2%, for the quarter and increased $1.2 million, or 2.0%, year-to-date compared to the prior year periods resulting from the impact of the increase in same-store sales and the increase in equivalent units, partially offset by changes to certain international restaurants' contribution arrangements. Initial and other fees decreased $0.1 million, or 4.2%, for the quarter and $0.4 million, or 8.4%, year-to-date compared to the prior year periods. The decrease for the quarter and year-to-date was the result of fewer franchise restaurants closed in the current year period resulting in less accelerated revenue recognition. Occupancy revenue increased $2.8 million, or 35.3%, for the quarter and increased $2.2 million, or 9.2%, year-to-date compared to the prior year periods. These increases were primarily the result of additional leases and subleases to franchisees as a result of our refranchising and development strategy.

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Costs of franchise and license revenue increased $3.0 million, or 10.5%, for the quarter and $1.3 million, or 1.5%, year-to-date compared to the prior year periods. Advertising costs increased $1.2 million, or 6.2%, for the quarter and increased $1.2 million, or 2.1%, year-to-date. Occupancy costs increased $1.7 million, or 29.9%, for the quarter and $1.0 million, or 5.6%, year-to-date. The changes to advertising costs and occupancy costs were a result of the changes in the related revenues noted above. Other direct costs increased $0.1 million, or 2.6%, for the quarter and decreased $0.9 million, or 8.4%, year-to-date. The year-to-date decrease resulted primarily from decreases in franchise administration costs. As a result, costs of franchise and license revenue as a percentage of franchise and license revenue decreased to 51.3% and 51.2% for the quarter and three quarters ended September 25, 2019 from 51.8% and 52.6% for the 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 25, 2019		September 26, 2018		September 25, 2019		September 26, 2018
	(In thousands)
Corporate administrative expenses	$	12,091	$	12,779	$	37,396	$	39,252
Share-based compensation	2,176		1,100		7,142		3,661
Incentive compensation	1,872		1,645		7,329		4,738
Deferred compensation valuation adjustments	256		457		1,792		487
Total general and administrative expenses	$	16,395	$	15,981	$	53,659	$	48,138

Corporate administrative expenses decreased by $0.7 million for the quarter and $1.9 million year-to-date primarily due to the rationalization of certain business costs in connection with our refranchising and development strategy. Share-based compensation increased $1.1 million for the quarter and $3.5 million year-to-date. Incentive compensation increased $0.2 million for the quarter and $2.6 million year-to-date. The increases in share-based compensation and incentive compensation primarily resulted from our performance against plan metrics. 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 income, net.

Depreciation and amortization consisted of the following:

	Quarter Ended				Three Quarters Ended
	September 25, 2019		September 26, 2018		September 25, 2019		September 26, 2018
	(In thousands)
Depreciation of property and equipment	$	2,865	$	4,717	$	10,415	$	13,788
Amortization of financing lease ROU assets	592		1,003		2,473		3,092
Amortization of intangible and other assets	881		1,040		2,731		3,085
Total depreciation and amortization expense	$	4,338	$	6,760	$	15,619	$	19,965

The decreases in depreciation and amortization expense during the current year were primarily related to refranchising restaurants and reclassifying certain restaurants to assets held for sale as part of our refranchising and development strategy.

26

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

	Quarter Ended						Three Quarters Ended
	September 25, 2019			September 26, 2018			September 25, 2019			September 26, 2018
	(In thousands)
Gains on sales of assets and other, net	$	(51,183	)	$	(695	)	$	(87,497	)	$	(759	)
Restructuring charges and exit costs	1,092			48			2,038			816
Impairment charges	—			1,440			—			1,558
Operating (gains), losses and other charges, net	$	(50,091	)	$	793		$	(85,459	)	$	1,615

Gains on sales of assets and other, net for the current year periods were primarily comprised of $50.4 million related to the sales of company restaurants and $1.3 million related to the sale of real estate for the quarter and $76.8 million related to the sales of company restaurants and $11.9 million related to the sale of real estate year-to-date. These sales were part of our refranchising and development strategy.

Restructuring charges and exit costs consisted of the following:

	Quarter Ended				Three Quarters Ended
	September 25, 2019		September 26, 2018		September 25, 2019		September 26, 2018
	(In thousands)
Exit costs	$	20	$	48	$	194	$	347
Severance and other restructuring charges	1,072		—		1,844		469
Total restructuring and exit costs	$	1,092	$	48	$	2,038	$	816

The increase in severance and other restructuring charges in the current year periods are the result of cost reduction efforts as we move to a more heavily franchised company.

Impairment charges for the quarter and three quarters end September 26, 2018 primarily resulted from the impairment of an underperforming unit.

Operating income was $68.2 million for the quarter and $138.4 million year-to-date compared to $18.5 million and $53.9 million, respectively, for the prior year periods.

Interest expense, net consisted of the following:

	Quarter Ended						Three Quarters Ended
	September 25, 2019			September 26, 2018			September 25, 2019			September 26, 2018
	(In thousands)
Interest on credit facilities	$	2,698		$	3,045		$	9,633		$	8,656
Interest on interest rate swaps, net	78			155			40			241
Interest on financing lease liabilities	906			1,542			3,740			4,716
Letters of credit and other fees	327			322			951			980
Interest income	(60		)	(47		)	(145		)	(125		)
Total cash interest	3,949			5,017			14,219			14,468
Amortization of deferred financing costs	152			152			456			455
Interest accretion on other liabilities	87			145			302			401
Total interest expense, net	$	4,188		$	5,314		$	14,977		$	15,324

    

Interest expense, net decreased by $1.1 million for the quarter primarily as a result of lower credit facility and financing lease balances. Interest expense, net decreased by $0.3 million for the year-to-date period as a result of lower financing lease balances, offset by higher interest rates on our credit facility.

27

Other nonoperating income, net was $0.4 million for the quarter and $2.1 million year-to-date, compared to $0.5 million and $0.9 million, respectively, for the prior year periods. Nonoperating income primarily resulted from gains on deferred compensation plan investments.

Provision for income taxes was $15.3 million for the quarter and $26.7 million year-to-date, compared to $2.8 million and $7.2 million for the prior year periods. The effective tax rate was 23.7% for the quarter and 21.3% year-to-date, compared to 20.6% and 18.3% for the prior year periods. The 2019 quarterly and year-to-date rates included the impact of excess tax benefits relating to share-based compensation of 1.0% and 1.8%, respectively. The 2018 periods included the impact of excess tax benefits relating to share-based compensation of 0.5% and 3.4%, respectively. In addition, during the second quarter of 2019, we completed an Internal Revenue Service federal income tax audit of the 2016 tax year. Upon completion of this audit, revaluations of certain tax positions were performed and as a result, we have recognized a net benefit 1.6% for the 2019 year-to-date period. We expect the 2019 fiscal year effective tax rate to be between 20% and 23%. The annual effective tax rate cannot be determined until the end of the fiscal year; therefore, the actual rate could differ from our current estimates.

Net income was $49.1 million for the quarter and $98.9 million year-to-date compared with $10.8 million and $32.2 million for the prior year periods.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash generated from operations, borrowings under our credit facility (as described below) and proceeds from the sales of company restaurants as part of our refranchising and development strategy. Principal uses of cash are operating expenses, capital expenditures and the repurchase of shares of our common stock.

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

	Three Quarters Ended
	September 25, 2019			September 26, 2018
	(In thousands)
Net cash provided by operating activities	$	32,026		$	46,259
Net cash provided by (used in) investing activities	95,635			(28,497		)
Net cash used in financing activities	(130,667		)	(20,874		)
Decrease in cash and cash equivalents	$	(3,006	)	$	(3,112	)

Net cash flows provided by operating activities were $32.0 million for the three quarters ended September 25, 2019 compared to $46.3 million for the three quarters ended September 26, 2018. The decrease in cash flows provided by operating activities was primarily due to the timing of prepaid expense payments during the three quarters ended September 25, 2019 and the runoff of working capital deficit following the sales of company restaurants. We believe that our estimated cash flows from operations for 2019, combined with our capacity for additional borrowings under our credit facility, will enable us to meet our anticipated cash requirements and fund capital expenditures over the next 12 months.

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 the acquisition of real estate of $1.5 million, and investment purchases of $1.3 million. Net cash flows used in investing activities were $28.5 million for the three quarters ended September 26, 2018. These cash flows were primarily comprised of capital expenditures of $17.3 million and acquisitions of restaurants and real estate of $10.4 million.

28

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

	Three Quarters Ended
	September 25, 2019		September 26, 2018
	(In thousands)
Facilities	$	8,285	$	7,440
New construction	1,999		2,238
Remodeling	1,104		3,608
Information technology	941		1,321
Other	317		2,687
Capital expenditures (excluding acquisitions)	$	12,646	$	17,294

Capital expenditures and acquisitions for fiscal 2019 are expected to be between approximately $38 million and $43 million, including between $23 million and $28 million of real estate acquisitions through like-kind exchanges.

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. Cash flows used in financing activities were $20.9 million for the three quarters ended September 26, 2018, which included cash payments for stock repurchases of $37.1 million, partially offset by net long-term debt borrowings of $16.6 million.

Our working capital deficit was $48.8 million at September 25, 2019 compared to $47.1 million at December 26, 2018. The increase in working capital deficit was primarily related to the the adoption of Topic 842, which resulted in the recognition of $16.7 million in current operating lease liabilities as of September 25, 2019, partially offset by the runoff of working capital deficit following the sales of company restaurants and the timing of receivable collections. 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 a limited investment in inventories, and (3) accounts payable for food, beverages and supplies usually become due after the receipt of cash from the related sales.

Credit Facility

As of September 25, 2019, we had outstanding revolver loans of $213.0 million and outstanding letters of credit under the senior secured revolver of $20.6 million. These balances resulted in availability of $166.4 million under the credit facility. The credit facility includes an accordion feature that would allow us to increase the size of the revolver to $450 million. Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 4.18% as of September 25, 2019. Taking into consideration our interest rate swaps, the weighted-average interest rate of outstanding revolver loans was 4.44% as of September 25, 2019.

A commitment fee, which is based on our consolidated leverage ratio, is paid on the unused portion of the credit facility and was 0.30% as of September 25, 2019. Borrowings under the credit facility bear a tiered interest rate, which is based on our consolidated leverage ratio and was set at LIBOR plus 2.00% basis points as of September 25, 2019. The maturity date for the credit facility is October 26, 2022.

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). It includes negative covenants that are usual for facilities and transactions of this type. The credit facility also includes certain financial covenants with respect to a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. We were in compliance with all financial covenants as of September 25, 2019.

Interest Rate Hedges

We have interest rate swaps to hedge a portion of the forecasted cash flows of our floating rate debt. We designated the interest rate swaps as cash flow hedges of our exposure to variability in future cash flows attributable to payments of variable interest due on forecasted notional debt obligations. As of September 25, 2019, the fair value of the interest rate swaps was a liability of $55.8 million, which is recorded as a component of other noncurrent liabilities in our Condensed Consolidated Balance Sheets.

29

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

With the exception of changes in the fair value of our interest rate swaps, 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 9, 10 and 16 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 President and Chief Executive Officer, John C. Miller, and our Executive Vice President, Chief Administrative Officer and Chief Financial Officer, F. Mark Wolfinger) 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 Wolfinger 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 Wolfinger, as appropriate to allow timely decisions regarding required disclosure. 

During the first quarter of 2019, we implemented new controls in connection with our adoption of the Accounting Standards Updates related to Topic 842, Leases. These new controls resulted in changes to the leasing process and related procedures for internal control over financial reporting. We assessed the control design during implementation and are in the process of conducting post-implementation monitoring and testing to ensure the effectiveness of internal control over financial reporting. There were no other 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 the quarter ended September 25, 2019 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 17 to our unaudited condensed consolidated financial statements set forth in Part I, Item 1 of this report.

Item 1A.     Risk Factors

There have been no material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2018.

30

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

Purchases of Equity Securities by the Issuer

The table below provides information concerning repurchases of shares of our common stock during the quarter ended September 25, 2019. 

Period	Total Number of Shares Purchased	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Programs (2)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs (2)
	(In thousands, except per share amounts)
June 27, 2019 - July 24, 2019	380	$	21.29	380	$	82,302
July 25, 2019 - August 21, 2019	120	22.16		120	$	79,641
August 22, 2019 - September 25, 2019	89	22.85		89	$	77,591
Total	589	$	21.70	589

(1) Average price paid per share excludes commissions.

(2) On October 27, 2017, we announced that our Board of Directors approved a new share repurchase program, authorizing us to repurchase up to an additional $200 million of our common stock (in addition to prior authorizations). Such repurchases may take place from time to time in the open market (including pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Exchange Act) or in privately negotiated transactions, subject to market and business conditions. During the quarter ended September 25, 2019, we purchased 0.6 million shares of our common stock for an aggregate consideration of approximately $12.8 million pursuant to the share repurchase program.

Item 6.     Exhibits

The following are included as exhibits to this report: 

Exhibit No.	Description
31.1	Certification of John C. Miller, President and 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 F. Mark Wolfinger, Executive Vice President, Chief Administrative Officer 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, President and Chief Executive Officer of Denny's Corporation, and F. Mark Wolfinger, Executive Vice President, Chief Administrative Officer 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)

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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 29, 2019	By:	/s/ F. Mark Wolfinger
			F. Mark Wolfinger
			Executive Vice President, Chief Administrative Officer and Chief Financial Officer
Date:	October 29, 2019	By:	/s/ Jay C. Gilmore
			Jay C. Gilmore
			Vice President, Chief Accounting Officer and Corporate Controller

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