UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2004 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 (I.R.S. Employer
incorporation or organization) 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)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of August 2, 2004, 89,742,731 shares of the registrant's common stock, par
value $.01 per share, were outstanding.
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Denny's Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Quarter Ended
-------------
June 30, 2004 June 25, 2003
------------- -------------
(In thousands, except per share amounts)
Revenue:
Company restaurant sales $ 217,906 $ 208,457
Franchise and license revenue 21,835 21,603
--------- ---------
Total operating revenue 239,741 230,060
--------- ---------
Costs of company restaurant sales:
Product costs 56,361 53,008
Payroll and benefits 90,018 92,151
Occupancy 12,142 11,947
Other operating expenses 29,166 28,086
--------- ---------
Total costs of company restaurant sales 187,687 185,192
Costs of franchise and license revenue 7,049 6,778
General and administrative expenses 14,228 13,044
Depreciation and amortization 14,194 14,420
Restructuring charges and exit costs (519) (982)
Impairment charges 497 410
Gains on disposition of assets and other, net (158) (2,552)
--------- ----------
Total operating costs and expenses 222,978 216,310
--------- ---------
Operating income 16,763 13,750
--------- ---------
Other expenses:
Interest expense, net 19,457 18,989
Other nonoperating expense (income), net 1 (127)
--------- ---------
Total other expenses, net 19,458 18,862
--------- ---------
Loss before income taxes (2,695) (5,112)
Provision for income taxes 203 265
--------- ---------
Net loss $ (2,898) $ (5,377)
========= =========
Per share amounts:
Basic and diluted net loss per share $ (0.07) $ (0.13)
========= =========
Weighted average shares outstanding:
Basic and diluted 41,258 40,743
========= =========
See accompanying notes
2
Denny's Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
Two Quarters Ended
------------------
June 30, 2004 June 25, 2003
------------- -------------
(In thousands, except per share amounts)
Revenue:
Company restaurant sales $ 425,668 $ 407,901
Franchise and license revenue 43,468 43,000
--------- ---------
Total operating revenue 469,136 450,901
--------- ---------
Cost of company restaurant sales:
Product costs 109,436 102,083
Payroll and benefits 178,276 180,695
Occupancy 24,690 24,047
Other operating expenses 57,205 56,831
--------- ---------
Total costs of company restaurant sales 369,607 363,656
Costs of franchise and license revenue 14,217 13,270
General and administrative expenses 29,409 26,247
Depreciation and amortization 28,412 28,677
Restructuring charges and exit costs (414) (936)
Impairment charges 497 699
Gains on disposition of assets and other, net (232) (4,869)
--------- ---------
Total operating costs and expenses 441,496 426,744
--------- ---------
Operating income 27,640 24,157
--------- ---------
Other expenses:
Interest expense, net 38,925 38,206
Other nonoperating income, net (64) (120)
--------- ---------
Total other expenses, net 38,861 38,086
--------- ---------
Loss before income taxes (11,221) (13,929)
Provision for income taxes 407 530
--------- ---------
Net loss $ (11,628) $ (14,459)
========= =========
Per share amounts:
Basic and diluted net loss per share: $ (0.28) $ (0.36)
========= =========
Weighted average shares outstanding:
Basic and diluted 41,161 40,628
========= =========
See accompanying notes
3
Denny's Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, 2004 December 31, 2003
------------- -----------------
(In thousands)
Assets
Current Assets:
Cash and cash equivalents $ 4,038 $ 7,363
Receivables, net 8,688 9,771
Inventories 8,698 8,158
Other current assets 6,158 6,965
------------ -------------
Total Current Assets 27,582 32,257
------------ -------------
Property, net 287,665 296,995
Other Assets:
Goodwill 50,404 50,404
Intangible assets, net 80,456 83,879
Deferred financing costs, net 6,700 9,887
Other assets 32,617 33,230
------------ -------------
Total Assets $ 485,424 $ 506,652
============ =============
Liabilities
Current Liabilities:
Current maturities of notes and debentures $ 42,274 $ 51,714
Current maturities of capital lease obligations 3,331 3,462
Accounts payable 32,394 40,617
Other current liabilities 107,267 96,932
------------ -------------
Total Current Liabilities 185,266 192,725
------------ -------------
Long-Term Liabilities:
Notes and debentures, less current maturities 508,466 509,593
Capital lease obligations, less current maturities 28,411 28,728
Liability for insurance claims 27,164 25,585
Other noncurrent liabilities and deferred credits 60,411 62,953
------------ -------------
Total Long-Term Liabilities 624,452 626,859
------------ -------------
Total Liabilities 809,718 819,584
Total Shareholders' Deficit (324,294) (312,932)
------------ -------------
Total Liabilities and Shareholders' Deficit $ 485,424 $ 506,652
============ =============
See accompanying notes
4
Denny's Corporation and Subsidiaries
Condensed Consolidated Statement of Shareholders' Deficit
(Unaudited)
Accumulated
Common Stock Additional Other Total
------------ Paid-in Accumulated Comprehensive Shareholders'
Shares Amount Capital Deficit Loss Deficit
------ ------ ------- ------- ---- -------
(In thousands)
Balance, December 31, 2003 41,003 $ 410 $ 417,816 $ (713,216) $ (17,942) $ (312,932)
------ ---- -------- --------- --------- ----------
Net loss --- --- --- (11,628) --- (11,628)
Exercise of common stock options 310 3 263 --- --- 266
------ ---- -------- --------- --------- ----------
Balance, June 30, 2004 41,313 $ 413 $ 418,079 $ (724,844) $ (17,942) $ (324,294)
====== ==== ======== ========= ========= ==========
See accompanying notes
5
Denny's Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Two Quarters Ended
------------------
June 30, 2004 June 25, 2003
------------- -------------
(In thousands)
Cash Flows from Operating Activities:
Net loss $ (11,628) $ (14,459)
Adjustments to reconcile net loss to cash flows provided by operating activities:
Depreciation and amortization 28,412 28,677
Impairment charges 497 699
Restructuring charges and exit costs (414) (936)
Recognition of deferred gains --- (1,909)
Amortization of deferred financing costs 3,187 2,382
Gains on disposition of assets and other, net (232) (4,869)
Amortization of debt premium (920) (802)
Changes in assets and liabilities, net of effects of acquisitions and
dispositions:
Decrease (increase) in assets:
Receivables 997 4,640
Inventories (541) (928)
Other current assets 807 (4,319)
Other assets (1,048) (743)
Increase (decrease) in liabilities:
Accounts payable (3,767) 1,042
Accrued salaries and vacations 5,768 (384)
Accrued taxes (1,320) 17
Other current liabilities 6,302 (3,247)
Other noncurrent liabilities and deferred credits (901) (2,341)
---------- ----------
Net cash flows provided by operating activities 25,199 2,520
---------- ----------
Cash Flows from Investing Activities:
Purchase of property (14,156) (13,958)
Proceeds from disposition of property 526 11,882
---------- ----------
Net cash flows used in investing activities (13,630) (2,076)
---------- ----------
See accompanying notes
6
Denny's Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows - Continued
(Unaudited)
Two Quarters Ended
------------------
June 30, 2004 June 25, 2003
------------- -------------
(In thousands)
Cash Flows from Financing Activities:
Net borrowings (repayments) under credit agreement $ (9,350) $ 3,200
Long-term debt payments (2,338) (2,258)
Deferred financing costs paid --- (1,058)
Proceeds from exercise of stock options 226 ---
Costs of equity issuance (483) ---
Net bank overdrafts (2,989) (1,498)
---------- ----------
Net cash flows used in financing activities (14,894) (1,614)
---------- ----------
Decrease in cash and cash equivalents (3,325) (1,170)
Cash and Cash Equivalents at:
Beginning of period 7,363 5,717
---------- ----------
End of period $ 4,038 $ 4,547
========== ==========
See accompanying notes
7
Denny's Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited)
Note 1. General
-------
Denny's Corporation, through its wholly owned subsidiaries, Denny's Holdings,
Inc. and Denny's, Inc., owns and operates the Denny's restaurant brand, or
Denny's.
Our consolidated financial statements are unaudited and include all adjustments
we believe are necessary for a fair presentation of the results of operations
for such interim periods. All such adjustments are of a normal and recurring
nature. These interim consolidated financial statements should be read in
conjunction with our consolidated financial statements and notes thereto for the
year ended December 31, 2003 and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations, both of which are
contained in our 2003 Annual Report on Form 10-K. The results of operations for
the quarter ended June 30, 2004 are not necessarily indicative of the results
for the entire fiscal year ending December 29, 2004.
Note 2. Restructuring Charges and Exit Costs
------------------------------------
Restructuring charges and exit costs consist primarily of severance and
outplacement costs for terminated employees and the costs of future obligations
related to closed units.
In assessing the discounted liabilities for future costs related to units closed
or identified for closure prior to December 26, 2002, the date we adopted
Statement of Financial Accounting Standards No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities," or SFAS 146, we make assumptions
regarding the timing of units' closures, amounts of future subleases, amounts of
future property taxes and costs of closing the units. If these assumptions or
their related estimates change in the future, we may be required to record
additional exit costs or reduce exit costs previously recorded. Exit costs
recorded for each of the periods presented include the effect of such changes in
estimates.
As a result of the adoption of SFAS 146, discounted liabilities for future lease
costs net of the fair value of related subleases of units closed after December
25, 2002 are recorded when the unit is closed. All other costs related to unit
closures, including property taxes and maintenance related costs, are expensed
as incurred.
Restructuring charges and exit costs were comprised of the following:
Quarter Ended Two Quarters Ended
------------- ------------------
June 30, 2004 June 25, 2003 June 30, 2004 June 25, 2003
------------- -------------- ------------- -------------
(In thousands)
Exit costs $ (569) $ (1,571) $ (525) $ (1,525)
Severance and other restructuring charges 50 589 111 589
------------ ------------- ------------ -------------
Total restructuring and exit costs $ (519) $ (982) $ (414) $ (936)
============ ============= ============ =============
8
The components of the change in accrued exit cost liabilities are as follows:
(In thousands)
Balance, December 31, 2003 $ 13,044
Provisions for units closed in 2004 246
Reversals of accrued exit costs, net (771)
Payments, net (2,310)
Interest accretion 695
-----------
Balance, June 30, 2004 $ 10,904
===========
Estimated net cash payments related to exit cost liabilities in the next five
years are as follows:
(In thousands)
Remainder of 2004 $ 1,925
2005 1,935
2006 1,654
2007 1,383
2008 1,301
Thereafter 8,133
-----------
Total 16,331
Less imputed interest 5,427
-----------
Present value of exit cost liabilities $ 10,904
===========
Note 3. Credit Facility
---------------
We have a senior secured credit facility, or credit facility, which initially
provided Denny's with a working capital and letter of credit facility of up to
$125 million. On September 26, 2003, we amended and restated our $125 million
credit facility to include $40 million of term loans, thereby increasing the
aggregate commitments to $165 million. The term loans do not amortize prior to
maturity. Effective June 30, 2004, commitments under the credit facility were
reduced to $155 million as scheduled in the credit agreement. The amended and
restated facility, including the term loans, will mature on December 20, 2004.
See Note 9 regarding a commitment letter entered into subsequent to the end of
the second quarter related to new credit facilities to replace our current
credit facility.
At June 30, 2004, we had outstanding revolving loans of $1.7 million, letters of
credit of $35.1 million and term loans of $40.0 million under our credit
facility, leaving net availability of $78.2 million. Revolving loans under the
credit facility accrue interest at a variable rate (8.0% at June 30, 2004) based
on the prime rate or an adjusted Eurodollar rate. Term loans bear interest at a
fixed rate of 11.00% per annum. See Note 9 regarding repayment of term loans
subsequent to the end of the second quarter.
The credit facility is generally secured by liens on the stock of our
subsidiaries, accounts receivable, intellectual property, cash and cash
accounts. In addition, the facility is secured by first-priority mortgages on
240 owned restaurant properties and our corporate headquarters, located in
Spartanburg, South Carolina. Denny's Corporation and its subsidiaries are
guarantors under the credit facility. The credit facility contains certain
financial covenants (i.e., minimum EBITDA (as defined under the credit facility)
requirements, total debt to EBITDA ratio requirements and total senior secured
debt to EBITDA requirements), negative covenants, conditions precedent, material
adverse change provisions, events of default and other terms, conditions and
provisions customarily found in credit agreements for leveraged financings. We
were in compliance with the terms of the credit facility, as amended, as of June
30, 2004 and we expect to remain in compliance with the terms of our credit
facility through its expiration date.
9
Note 4. Defined Benefit Plans
---------------------
We maintain defined benefit plans which cover a substantial number of employees.
Benefits are based upon each employee's years of service and average salary. Our
funding policy is based on the minimum amount required under the Employee
Retirement Income Security Act of 1974. The pension plan was closed to new
participants as of December 31, 1999. Benefits will cease to accrue for pension
plan participants as of December 31, 2004. We also maintain defined contribution
plans.
The components of net pension cost of the pension plan and other defined benefit
plans as determined under Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," are as follows:
Pension Plan Other Defined Benefit Plans
--------------------------------- --------------------------------
Quarter Ended Quarter Ended
------------- -------------
June 30, 2004 June 25, 2003 June 30, 2004 June 25, 2003
------------- ------------- ------------- -------------
(In thousands)
Service cost $ 120 $ 74 $ 77 $ 98
Interest cost 733 718 56 60
Expected return on plan assets (699) (632) --- ---
Amortization of net loss 200 213 6 14
------------- ------------- ------------- -------------
Net periodic benefit cost $ 354 $ 373 $ 139 $ 172
============= ============= ============= =============
Pension Plan Other Defined Benefit Plans
---------------------------------- --------------------------------
Two Quarters Ended Two Quarters Ended
------------------ ------------------
June 30, 2004 June 25, 2003 June 30, 2004 June 25, 2003
-------------- ------------- ------------- -------------
(In thousands)
Service cost $ 240 $ 149 $ 155 $ 196
Interest cost 1,466 1,437 113 120
Expected return on plan assets (1,398) (1,265) --- ---
Amortization of net loss 400 427 12 28
------------- ------------- ------------- -------------
Net periodic benefit cost $ 708 $ 748 $ 280 $ 344
============= ============= ============= =============
We made contributions of $0.6 million to our pension plan during the two
quarters ended June 30, 2004. No contributions were made to our pension plan
during the two quarters ended June 25, 2003. We made contributions of $0.1
million and $0.3 million to our other defined benefit plans during the two
quarters ended June 30, 2004 and June 25, 2003, respectively. As of June 30,
2004, we expect to contribute $2.9 million to our pension plan and an additional
$0.1 million to our other defined benefit plans during the remainder of fiscal
2004.
Note 5. Stock Based Compensation
------------------------
We have adopted the disclosure-only provisions of SFAS 123, "Accounting for
Stock Based Compensation," while continuing to follow Accounting Principles
Board Opinion No. 25, or APB 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for our stock-based compensation plans
(i.e., the "intrinsic method"). Under APB 25, because the exercise price of our
employee stock options equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense has been recognized in our
statements of operations.
10
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Our pro forma
information follows:
Quarter Ended Two Quarters Ended
------------- ------------------
June 30, 2004 June 25, 2003 June 30, 2004 June 25, 2003
------------- ------------- ------------- -------------
(In thousands, except per share amounts)
Reported net loss $ (2,898) $ (5,377) $ (11,628) $ (14,459)
Less total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects 87 377 291 760
-------- -------- --------- ---------
Pro forma net loss $ (2,985) $ (5,754) $ (11,919) $ 1 5,219)
======== ======== =========
Loss per share:
Basic and diluted - as reported $ (0.07) $ (0.13) $ (0.28) $ (0.36)
======== ======== ========= =========
Basic and diluted - pro forma $ (0.07) $ (0.14) $ (0.29) (0.37)
======== ======== ========= =========
See Note 9 regarding issuance of common stock subsequent to the end of the
second quarter.
Note 6. Net Loss Per Share
------------------
Warrants outstanding of 3.2 million at June 30, 2004 and June 25, 2003 have been
omitted from the calculations of weighted average diluted shares for all periods
presented because they have an antidilutive effect on net loss per share.
Options outstanding of 6.7 million and 7.6 million at June 30, 2004 and June 25,
2003, respectively, have also been omitted from the calculations of weighted
average diluted shares for all periods presented because they have an
antidilutive effect on net loss per share.
Note 7. Supplemental Cash Flow Information
----------------------------------
Two Quarters Ended
------------------
June 30, 2004 June 25, 2003
------------- -------------
(In thousands)
Income taxes paid, net $ 442 $ 18
========== ==========
Interest paid $ 35,793 $ 34,798
========== ==========
Noncash investing activities:
Receivables forgiven related to reacquisition of restaurants $ --- $ 366
========== ==========
Noncash financing activities:
Capital leases entered into $ 1,801 $ 412
=========== ==========
Note 8. Implementation of New Accounting Standards
------------------------------------------
In January 2003, the FASB issued FASB Interpretation (FIN) No. 46,
"Consolidation of Variable Interest Entities." In December 2003, the FASB issued
FIN No. 46 (Revised) (FIN 46-R) to address certain FIN 46 implementation issues,
including the delay of the effective date for certain types of Variable Interest
Entities (VIEs). This interpretation clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," for companies
that have interests in entities that are VIEs as defined under FIN 46. According
to this interpretation, if a company has an interest in a VIE and is at risk for
a majority of the VIE's expected losses or receives a majority of the VIE's
expected gains, it shall consolidate the VIE. FIN 46-R also requires additional
disclosures by primary beneficiaries and other significant variable interest
holders. For entities acquired or created before February 1, 2003, FIN 46-R is
effective no later than the end of the first interim or reporting period ending
after March 15, 2004, except for those VIEs that are considered to be special
purpose entities, for which the effective date is no later than the end of the
11
first interim or annual reporting period ending after December 15, 2003. For all
entities that were acquired subsequent to January 31, 2003, this interpretation
is effective as of the first interim or annual period ending after December 31,
2003. We completed adoption of FIN 46-R during the first quarter of 2004. The
adoption of FIN 46-R had no effect on our consolidated financial statements.
In December 2003 the FASB issued SFAS No. 132 (Revised) (SFAS 132-R),
"Employer's Disclosure about Pensions and Other Postretirement Benefits." SFAS
132-R retains disclosure requirements of the original SFAS 132 and requires
additional disclosures relating to assets, obligations, cash flows, and net
periodic benefit cost. SFAS 132-R is effective for fiscal years ending after
December 15, 2003, except that certain disclosures are effective for fiscal
years ending after June 15, 2004. Interim period disclosures are effective for
interim periods beginning after December 15, 2003. See Note 4.
Note 9. Subsequent Events
-----------------
On July 7, 2004 (subsequent to the end of the second quarter), we closed a
private placement of 48.4 million shares of our common stock at a price of $1.90
per share to accredited institutional investors generating aggregate gross
proceeds of approximately $92.0 million. The shares of common stock were offered
and sold without registration under the Securities Act of 1933, as amended, in
reliance upon the exemptions from registration provided by such Act and/or the
regulations thereunder, including Section 4(2). The proceeds from the equity
placement have been applied to reduce indebtedness and for general corporate
purposes. As of July 29, 2004, we repurchased approximately $35.1 million
aggregate principal amount of our 11 1/4% Senior Notes, leaving a balance
outstanding of approximately $343.9 million, and approximately $8.7 million
aggregate principal amount of our 12 3/4% Senior Notes, leaving a balance
outstanding of $111.7 million. In addition, we repaid the $40 million balance
outstanding under the term loan portion of our revolving credit facility. We
expect to record a loss on retirement of debt of approximately $2.0 million as
a result of the debt repayments noted above, including the payment of prepayment
penalties and write off of related deferred financing costs.
The securities sold in the private placement, at the time of sale, were not
registered under the Securities Act of 1933, as amended, and consequently were
not able to be re-offered or re-sold in the United States in the absence of an
effective registration statement or exemption from registration requirements.
However, pursuant to an agreement made with the purchasers as part of the
transaction, we filed a registration statement with the Securities and Exchange
Commission and will seek and maintain the effectiveness of such registration
statement, for purposes of registering for resale the shares of common stock
issued in the private placement.
Subsequent to the end of the second quarter, Denny's Inc. and Denny's Realty
Inc., entered into a commitment letter for $275 million of senior secured credit
facilities. The new facilities will consist of a $200 million, five-year term
loan and a $75 million, four-year revolving credit facility. Banc of America
Securities LLC and UBS Securities LLC will act as joint lead arrangers for the
new facilities. The new credit facilities will refinance the existing credit
facility, refinance a portion of existing senior notes and be available for
working capital, capital expenditures and other general corporate purposes. The
new credit facilities will be guaranteed by Denny's Corporation and its other
subsidiaries and will generally be secured by liens on the same collateral that
secure the existing facility. The closing of the new credit facilities, expected
to occur in September, is subject to, among other conditions, the negotiation of
definitive agreements on mutually acceptable terms, as well as other customary
conditions for financings of this type.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is intended to highlight significant changes in our
financial position as of June 30, 2004 and results of operations for the quarter
and two quarters ended June 30, 2004 compared to the quarter and two quarters
ended June 25, 2003. The forward-looking statements included in Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
reflect our best judgment based on factors currently known, 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. Such factors include, among others: competitive pressures from
within the restaurant industry; the level of success of our operating
12
initiatives and advertising and promotional efforts; adverse publicity; changes
in business strategy or development plans; terms and availability of capital;
regional weather conditions; overall changes in the general economy,
particularly at the retail level; political environment (including acts of war
and terrorism); and other factors included in the discussion below, or in
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2003 and in Exhibit 99 thereto.
Statements of Operations
Quarter Ended Two Quarters Ended
June 30, 2004 June 25, 2003 June 30, 2004 June 25, 2003
--------------- --------------- --------------- ---------------
(Dollars in thousands) (Dollars in thousands)
Revenue:
Company restaurant sales............................... $217,906 90.9% $208,457 90.6% $425,668 90.7% $407,901 90.5%
Franchise and license revenue........................ 21,835 9.1% 21,603 9.4% 43,468 9.3% 43,000 9.5%
-------- ------ -------- ------ -------- ----- -------- ------
Total operating revenue........................... $239,741 100.0% $230,060 100.0% $469,136 100.0% $450,901 100.0%
Costs of company restaurant sales (a):
Product costs........................................ 56,361 25.9% 53,008 25.4% 109,436 25.7% 102,083 25.0%
Payroll and benefits................................. 90,018 41.3% 92,151 44.2% 178,276 41.9% 180,695 44.3%
Occupancy............................................ 12,142 5.6% 11,947 5.7% 24,690 5.8% 24,047 5.9%
Other operating expenses............................. 29,166 13.4% 28,086 13.5% 57,205 13.4% 56,831 13.9%
-------- ------ -------- ------ -------- ------ -------- ------
Total costs of company restaurant sales........... 187,687 86.1% 185,192 88.8% 369,607 86.8% 363,656 89.2%
Costs of franchise and license revenue (a)............. 7,049 32.3% 6,778 31.4% 14,217 32.7% 13,270 30.9%
General and administrative expenses.................... 14,228 5.9% 13,044 5.7% 29,409 6.3% 26,247 5.8%
Depreciation and amortization.......................... 14,194 5.9% 14,420 6.3% 28,412 6.1% 28,677 6.4%
Restructuring charges and exit costs................... (519) (0.2%) (982) (0.4%) (414) (0.1%) (936) (0.2%)
Impairment charges..................................... 497 0.2% 410 0.2% 497 0.1% 699 0.2%
Gains on disposition of assets and other, net.......... (158) (0.1%) (2,552) (1.1%) (232) 0.0% (4,869) (1.1%)
-------- ------ ------- ------ -------- ------ -------- ------
Total operating costs and expenses................ 222,978 93.0% 16,310 94.0% 441,496 94.1% 426,744 94.6%
-------- ------ ------- ------ -------- ------ -------- ------
16,763 7.0% 3,750 6.0% 27,640 5.9% 24,157 5.4%
-------- ------ ------- ------ -------- ------ -------- ------
Other expenses:
Interest expense, net................................ 19,457 8.1% 8,989 8.3% 38,925 8.3% 38,206 8.5%
Other nonoperating expense (income), net............. 1 0.0% (127) (0.1%) (64) 0.0% (120) (0.0%)
-------- ------ -------- ------ -------- ------ -------- ------
Total other expenses, net......................... 19,458 8.1% 8,862 8.2% 8,861 8.3% 38,086 8.4%
-------- ------ -------- ------ -------- ------ -------- ------
Loss before income taxes............................... (2,695) (1.1%) (5,112) (2.2%) (11,221) (2.4%) (13,929) (3.1%)
Provision for income taxes............................. 203 0.1% 265 (0.1%) 407 0.1% 503 0.1%
-------- ------ -------- ------ -------- ------ -------- ------
Net loss .............................................. $ (2,898) (1.2%) $ (5,377) (2.3%) $(11,628) (2.5%) $(14,459) (3.2%)
======== ====== ======== ====== ======== ====== ======== ======
Other Data:
Company-owned average unit sales.................. $ 393.0 $ 372.2 $ 766.1 $ 727.0
Same-store sales increase (decrease)(company-owned) (b) 4.6% (0.6%) 5.5% (0.5%)
Guest check average increase (b)..................... 3.4% 3.9% 3.2% 3.2%
Guest count increase (decrease) (b).................. 1.1% (4.3%) 2.2% (3.6%)
- ------------------
(a) Costs of company restaurant sales percentages are as a percentage of company
restaurant sales. Costs of franchise and license revenue percentages are as
a percentage of franchise and license revenue. All other percentages are as
a percentage of total operating revenue.
(b) Same-store sales include sales from restaurants that were open the same days
in both the current year and prior year. For purposes of calculating
same-store sales, the 1st week of 2004 was compared to the 2nd week of 2003
due to a 53rd week in 2003. Prior year amounts have not been restated for
2004 comparable units.
13
Unit Activity
Ending Units Ending Ending
Units Opened/ Units Units Units Units
March 31, 2004 Acquired Refranchised Closed June 30, 2004 June 25, 2003
-------------- -------- ------------ ------ ------------- -------------
Company-owned restaurants 558 --- (1) (1) 556 563
Franchised and licensed restaurants 1,065 3 1 (6) 1,063 1,100
----- --- -- -- ----- -----
1,623 3 0 (7) 1,619 1,663
===== === == == ===== =====
Quarter Ended June 30, 2004 Compared with Quarter Ended June 25, 2003
- ---------------------------------------------------------------------
Company Restaurant Operations
During the quarter ended June 30, 2004, we realized a 4.6% increase in
same-store sales, comprised of a 3.4% increase in guest check average and a 1.1%
increase in guest counts. Company restaurant sales increased $9.4 million
(4.5%). Higher sales resulted primarily from the increase in same-store sales
for the current period partially offset by a 5 equivalent-unit decrease in
company-owned restaurants. The decrease in company-owned restaurants resulted
primarily from store closures.
Total costs of company restaurant sales as a percentage of company restaurant
sales decreased to 86.1% from 88.8%. Product costs increased to 25.9% from
25.4%, including the impact of a $1.0 million reduction of deferred gain
amortization related to the sale of former distribution subsidiaries in previous
years. This deferred gain became fully amortized in September of 2003. Excluding
the amortization of deferred gains for the prior year, product costs as a
percentage of sales were 25.9% in 2003. Payroll and benefits decreased to 41.3%
from 44.2% due to increased labor efficiency resulting from higher sales as well
as decreased health benefits costs resulting from new health benefits programs
implemented in 2004. These cost improvements were partially offset by higher
workers' compensation costs and increased in-restaurant incentive compensation
compared to the prior year. Occupancy costs decreased slightly to 5.6% from 5.7%
of company restaurant sales. Other operating expenses were comprised of the
following amounts and percentages of company restaurant sales:
Quarter Ended
-------------
June 30, 2004 June 25, 2003
----------------------- ------------------------
(Dollars in Thousands)
Utilities $ 9,376 4.3% $ 9,051 4.3%
Repairs and maintenance 4,171 1.9% 4,313 2.1%
Marketing 7,775 3.6% 6,789 3.3%
Other 7,844 3.6% 7,933 3.8%
------------- ------- -------------- -------
Other operating expenses $ 29,166 13.4% $ 28,086 13.5%
============= ======= ============== =======
Franchise Operations
Franchise and license revenues are the revenues received by Denny's from its
franchisees and include royalties, initial franchise fees and occupancy revenue
related to restaurants leased or subleased to franchisees. Costs of franchise
and license revenue include occupancy costs related to restaurants leased or
subleased to franchisees and direct costs consisting primarily of payroll and
benefit costs of franchise operations personnel and bad debt expense.
14
Franchise and license revenue and costs of franchise and license revenue were
comprised of the following amounts and percentages of franchise and license
revenue:
Quarter Ended
-------------
June 30, 2004 June 25, 2003
----------------------- -----------------------
(Dollars in Thousands)
Royalties and initial fees $ 14,018 64.2% $ 13,529 62.6%
Occupancy revenue 7,817 35.8% 8,074 37.4%
------------- ------- -------------- -------
Franchise and license revenue 21,835 100.0% $ 21,603 100.0%
============= ======= ============== =======
Occupancy costs 5,216 23.9% 5,399 25.0%
Other direct costs 1,833 8.4% 1,379 6.4%
------------- ------- -------------- -------
Costs of franchise and license revenue $ 7,049 32.3% $ 6,778 31.4%
============= ======== ============== =======
The revenue increase of $0.2 million (1.1%) resulted from a 4.8% increase in
franchisee same-store sales partially offset by a 37-unit decrease in franchised
and licensed units due to unit closures.
Costs of franchise and license revenue increased $0.3 million (4.0%). The
increase as a percentage of franchise and license revenues was primarily due to
increased franchise operations personnel incentive compensation compared to the
prior year.
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 increased $1.2 million (9.1%) compared with
the quarter ended June 25, 2003. The increase resulted primarily from higher
accruals for incentive compensation of approximately $2.8 million compared to
the prior year and the incurrence of costs related to exploring possible
alternatives to improve our long-term liquidity and capital structure
(approximately $0.5 million). These increases were partially offset by
reductions in corporate overhead related to organizational changes.
Gains on disposition of assets and other, net of $0.2 million in 2004 and $2.6
million in 2003 primarily represent gains on cash sales of surplus properties.
Operating income was $16.8 million for the quarter ended June 30, 2004 compared
with $13.8 million for the quarter ended June 25, 2003.
Interest expense, net for the quarter ended June 30, 2004 was comprised of $19.8
million of interest expense offset by $0.3 million of interest income, compared
with $19.4 million of interest expense offset by $0.4 million of interest income
for the quarter ended June 25, 2003. The increase in interest expense resulted
from higher deferred financing cost amortization related to our credit facility.
The provision for income taxes was $0.2 million and $0.3 million for the
quarters ended June 30, 2004 and June 25, 2003, respectively. These provisions
for income taxes primarily represent gross receipts-based state and foreign
income taxes which do not directly fluctuate in relation to changes in loss
before income taxes. We have provided valuation allowances related to any
benefits from income taxes resulting from the application of a statutory tax
rate to our net operating losses. Accordingly, no additional (benefit from) or
provision for income taxes has been reported for the periods presented. In
establishing our valuation allowance, we have taken into consideration certain
tax planning strategies involving the sale of appreciated properties in order to
alter the timing of the expiration of certain net operating loss, or NOL,
carryforwards in the event they were to expire unused. Such strategies, if
implemented in future periods, are considered by us to be prudent and feasible
in light of current circumstances. Circumstances may change in future periods
such that we can no longer conclude that such tax planning strategies are
prudent and feasible, which would require us to record additional deferred tax
valuation allowances.
15
Net loss was $2.9 million for the quarter ended June 30, 2004 compared with $5.4
million for the quarter ended June 25, 2003 due to the factors noted above.
Two Quarters Ended June 30, 2004 Compared with Two Quarters Ended June 25, 2003
- -------------------------------------------------------------------------------
Company Restaurant Operations
During the two quarters ended June 30, 2004, we realized a 5.5% increase in
same-store sales, comprised of a 2.2% increase in guest counts and a 3.3%
increase in guest check average. Company restaurant sales increased $17.8
million (4.4%). Higher sales resulted primarily from the increase in same-store
sales for the current year partially offset by a 5 equivalent-unit decrease in
company-owned restaurants. The decrease in company-owned restaurants resulted
primarily from store closures.
Total costs of company restaurant sales as a percentage of company restaurant
sales decreased to 86.8% from 89.2%. Product costs increased to 25.7% from
25.0%, including the impact of a $1.9 million reduction of deferred gain
amortization related to the sale of former distribution subsidiaries in previous
years. This deferred gain became fully amortized in September of 2003. Excluding
the amortization of deferred gains for the prior year, product costs as a
percentage of sales were 25.5% in 2003. This increase in product cost resulted
from unfavorable commodity costs, especially pork and beef, quality improvements
to existing products and a shift in menu mix. Payroll and benefits decreased to
41.9% from 44.3% due to increased labor efficiency resulting from higher sales
as well as decreased health benefits costs resulting from new health benefits
programs implemented in 2004. These cost improvements were partially offset by
higher workers' compensation costs and increased incentive compensation compared
to the prior year. Occupancy costs decreased slightly to 5.8% from 5.9% of
company restaurant sales. Other operating expenses were comprised of the
following amounts and percentages of company restaurant sales:
Two Quarters Ended
------------------
June 30, 2004 June 25, 2003
----------------------- -----------------------
(Dollars in Thousands)
Utilities $ 19,216 4.5% $ 18,138 4.4%
Repairs and maintenane 7,518 1.8% 9,008 2.2%
Marketing 15,239 3.6% 13,768 3.4%
Other 15,232 3.6% 15,917 3.9%
------------ ------- ------------ -------
Other operating expenses $ 57,205 13.4% $ 56,831 13.9%
============ ======= ============ =======
Franchise Operations
Franchise and license revenue and costs of franchise and license revenue were
comprised of the following amounts and percentages of franchise and license
revenue:
Two Quarters Ended
------------------
June 30, 2004 June 25, 2003
----------------------- -----------------------
(Dollars in Thousands)
Royalties and initial fees $ 27,925 64.2% $ 26,792 62.3%
Occupancy revenue 15,543 35.8% 16,208 37.7%
------------ ------- ------------ -------
Franchise and license revenue 43,468 100.0% 43,000 100.0%
============ ======= ============ =======
Occupancy costs 10,603 24.4% 10,935 25.4%
Other direct costs 3,614 8.3% 2,335 5.4%
------------ ------- ------------ -------
Costs of franchise and license revenue $ 14,217 32.7% $ 13,270 30.9%
============ ======= ============ =======
The revenue increase of $0.5 million (1.1%) resulted from a 5.7% increase in
franchisee same-store sales partially offset by a 37-unit decrease in franchised
and licensed units due to unit closures.
16
Costs of franchise and license revenue increased $0.9 million (7.1%). The
increase as a percentage of franchise and license revenues was due to increased
franchise operations personnel incentive compensation compared to the prior year
coupled with prior year costs benefiting from a net $0.3 million reduction in
bad debt expense related to the collection of certain past due accounts.
Other Operating Costs and Expenses
General and administrative expenses increased $3.2 million (12.0%) compared with
the two quarters ended June 25, 2003. The increase resulted primarily from
higher accruals for incentive compensation of approximately $4.0 million
compared to the prior year and the incurrence of costs related to exploring
possible alternatives to improve our long-term liquidity and capital structure
(approximately $2.5 million). These increases were partially offset by
reductions in corporate overhead related to organizational changes.
Gains on disposition of assets and other, net of $0.2 million in 2004 and $4.9
million in 2003 primarily represent gains on cash sales of surplus properties.
Operating income was $27.6 million for the two quarters ended June 30, 2004
compared with $24.2 million for the two quarters ended June 25, 2003.
Interest expense, net for the two quarters ended June 30, 2004 was comprised of
$39.6 million of interest expense offset by $0.7 million of interest income,
compared with $39.0 million of interest expense offset by $0.7 million of
interest income for the two quarters ended June 25, 2003. The increase in
interest expense resulted from higher deferred financing cost amortization
related to our credit facility.
The provision for income taxes was $0.4 million and $0.5 million for the two
quarters ended June 30, 2004 and June 25, 2003, respectively. These provisions
for income taxes primarily represent gross receipts-based state and foreign
income taxes which do not directly fluctuate in relation to changes in loss
before income taxes. We have provided valuation allowances related to any
benefits from income taxes resulting from the application of a statutory tax
rate to our net operating losses. Accordingly, no additional (benefit from) or
provision for income taxes has been reported for the periods presented. In
establishing our valuation allowance, we have taken into consideration certain
tax planning strategies involving the sale of appreciated properties in order to
alter the timing of the expiration of certain net operating loss, or NOL,
carryforwards in the event they were to expire unused. Such strategies, if
implemented in future periods, are considered by us to be prudent and feasible
in light of current circumstances. Circumstances may change in future periods
such that we can no longer conclude that such tax planning strategies are
prudent and feasible, which would require us to record additional deferred tax
valuation allowances.
Net loss was $11.6 million for the two quarters ended June 30, 2004 compared
with $14.5 million for the two quarters ended June 25, 2003 due to the factors
noted above.
Liquidity and Capital Resources
- -------------------------------
Revolving Credit Facility
We have a senior secured credit facility, or credit facility, which initially
provided Denny's with a working capital and letter of credit facility of up to
$125 million. On September 26, 2003, we amended and restated our $125 million
credit facility to include $40 million of term loans, thereby increasing the
aggregate commitments to $165 million. The term loans do not amortize prior to
maturity. Effective June 30, 2004, commitments under the credit facility were
reduced to $155 million as scheduled in the credit agreement. The amended and
restated facility, including the term loans, will mature on December 20, 2004.
17
At June 30, 2004, we had outstanding revolving loans of $1.7 million, letters of
credit of $35.1 million and term loans of $40.0 million under our credit
facility, leaving net availability of $78.2 million. Revolving loans under the
credit facility accrue interest at a variable rate (8.0% at June 30, 2004) based
on the prime rate or an adjusted Eurodollar rate. Term loans bear interest at a
fixed rate of 11.00% per annum.
The credit facility is generally secured by liens on the stock of our
subsidiaries, accounts receivable, intellectual property, cash and cash
accounts. In addition, the facility is secured by first-priority mortgages on
240 owned restaurant properties and our corporate headquarters, located in
Spartanburg, South Carolina. Denny's Corporation and its subsidiaries are
guarantors under the credit facility. The credit facility contains certain
financial covenants (i.e., minimum EBITDA (as defined under the credit facility)
requireents, total debt to EBITDA ratio requirements and total senior secured
debt to EBITDA requirements), negative covenants, conditions precedent, material
adverse change provisions, events of default and other terms, conditions and
provisions customarily found in credit agreements for leveraged financings. We
were in compliance with the terms of the credit facility, as amended, as of
June 30, 2004, and we expect to remain in compliance with the terms of our
credit facility through its expiration date.
Subsequent to the end of the second quarter, we repaid the $40.0 million of term
loans with a portion of the gross proceeds from the issuance of common stock.
See Issuance of Common Stock below. Additionally, subsequent to the end of the
second quarter, Denny's Inc. and Denny's Realty Inc., entered into a commitment
letter for $275 million of senior secured credit facilities. The new facilities
will consist of a $200 million, five-year term loan and a $75 million, four-year
revolving credit facility. Banc of America Securities LLC and UBS Securities LLC
will act as joint lead arrangers for the new facilities. The new credit
facilities will refinance the existing credit facility, refinance a portion of
existing senior notes and be available for working capital, capital expenditures
and other general corporate purposes. The new credit facilities will be
guaranteed by Denny's Corporation and its other subsidiaries and will generally
be secured by liens on the same collateral that secure the existing facility.
The closing of the new credit facilities, expected to occur in September, is
subject to, among other conditions, the negotiation of definitive agreements on
mutually acceptable terms, as well as other customary conditions for financings
of this type. If we are unable to close on the new credit facilities before our
current facility expires, our financial condition and results of operations will
be materially affected.
Issuance of Common Stock
On July 7, 2004 (subsequent to the end of the second quarter), we closed a
private placement of 48.4 million shares of our common stock at a price of $1.90
per share to accredited institutional investors generating aggregate gross
proceeds of approximately $92.0 million. The shares of common stock were offered
and sold without registration under the Securities Act of 1933, as amended, in
reliance upon the exemptions from registration provided by such Act and/or the
regulations thereunder, including Section 4(2). The proceeds from the equity
placement have been applied to reduce indebtedness and for general corporate
purposes. As of July 29, 2004, we repurchased approximately $35.1 million
aggregate principal amount of our 11 1/4% Senior Notes, leaving a balance
outstanding of approximately $343.9 million, and approximately $8.7 million
aggregate principal amount of our 12 3/4% Senior Notes, leaving a balance
outstanding of $111.7 million. In addition, we have we repaid the $40 million
balance outstanding under the term loan portion of our revolving credit
facility. We expect to record a loss on retirement of debt of approximately $2.0
million as a result of the debt repayments noted above, including the payment of
prepayment penalties and write off of related direct financing costs.
Cash Requirements
Our principal capital requirements have been largely associated with remodeling
and maintaining our existing restaurants and facilities. For the two quarters
ended June 30, 2004, our capital expenditures were $16.0 million. Of that
amount, approximately $1.8 million was financed through capital leases. Capital
expenditures during 2004 are expected to total approximately $40.0 million;
however, we are not committed to spending this amount and could spend more or
less if circumstances require.
Although we have recently improved our liquidity position through the repayment
of indebtedness with the proceeds from our issuance of common stock, and
although our cash flows together with borrowings under our credit facility have
been sufficient to fund our operations and make interest payments when due, we
18
continue to explore possible alternatives to improve our long-term liquidity and
capital structure.
Our working capital deficit was $157.7 million at June 30, 2004 compared with
$160.5 million at December 31, 2003. 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.
Implementation of New Accounting Standards
- ------------------------------------------
See Note 8 to our Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to interest rate risk related to certain instruments entered
into for other than trading purposes. Specifically, borrowings under the credit
facility bear interest at a variable rate based on the prime rate (prime rate
plus 4%) or an adjusted Eurodollar rate (LIBOR plus 5%). A 100 basis point
change in the credit facility interest rate (8.0% at June 30, 2004) would cause
the interest expense for the remainder of 2004 to change by less than $0.1
million. This computation is determined by considering the impact of
hypothetical interest rates on the revolving portion of our credit facility at
June 30, 2004. However, the nature and amount of our borrowings under the credit
facility may vary as a result of future business requirements, market conditions
and other factors.
Our other outstanding long-term debt bears fixed rates of interest. The
estimated fair value of our fixed rate long-term debt (excluding capital leases)
was approximately $535.1 million at June 30, 2004. The carrying value of such
debt was approximately $549.0 million at June 30, 2004. This computation is
based on market quotations for the same or similar debt issues or the estimated
borrowing rates available to us. The difference in the estimated fair value of
long-term debt compared to its historical cost reported in our consolidated
balance sheets at June 30, 2004 relates primarily to market quotations for our
11 1/4% and 12 3/4% Notes.
We have established a policy to identify, control and manage market risks which
may arise from changes in interest rates, foreign currency exchange rates,
commodity prices and other relevant rates and prices. We do not use derivative
instruments for trading purposes, and no interest rate or other financial
derivatives were in place at June 30, 2004.
Item 4. Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as
amended, our management conducted an evaluation (under the supervision and with
the participation of our President and Chief Executive Officer, Nelson J.
Marchioli, and our Senior Vice President and Chief Financial Officer, Andrew F.
Green) as of the end of the period covered by this report, of the effectiveness
of our disclosure controls and procedures as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended. Based on that evaluation, Messrs.
Marchioli and Green each concluded that Denny's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports that Denny's files or submits under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
There have been no changes in our internal control over financial reporting
identified in connection with the evaluation required by Rule 13a-15(d) of the
Securities Exchange Act of 1934, as amended, that occurred during our last
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and pending legal actions against or indirectly
involving us, including actions concerned with civil rights of employees and
customers, other employment related matters, taxes, sales of franchise rights
and businesses and other matters. Our ultimate legal and financial liability
with respect to these matters cannot be estimated with certainty. However, we
believe, based on our examination of these matters and our experience to date,
that the ultimate disposition of them will not significantly affect our
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of Denny's Corporation was held on Thursday,
May 27, 2004, and the following matters were voted on by the stockholders of
Denny's Corporation:
(i) Election of Directors
---------------------
Votes Against
Name Votes For or Withheld
---- --------- -----------
Vera K. Farris 28,486,643 5,038,935
Vada Hill 28,482,684 5,042,894
Nelson J. Marchioli 28,557,291 4,968,287
Robert E. Marks 28,536,889 4,988,689
Elizabeth A. Sanders 28,488,291 5,037,287
Donald R. Shepherd 28,537,991 4,987,587
Debra Smithart-Oglesby 28,487,991 5,037,587
(ii) Ratification of the Selection of KPMG LLP as Auditors for the 2004 fiscal
-------------------------------------------------------------------------
year
----
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
33,462,369 25,178 38,031
(iii) Approval of 2004 Incentive Program for the Company's Employees
--------------------------------------------------------------
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
26,812,338 1,807,293 4,905,947
Item 6. Exhibits and Reports on Form 8-K
a. The following are included as exhibits to this report:
Exhibit
No. Description
------- -----------
4.1 Amendment No. 2 dated as of July 27, 2004 to the Rights
Agreement, dated as of December 15, 1998, as previously
amended as of July 2, 2004, between Denny's Corporation and
Continental Stock Transfer & Trust Company.
10.1 Amendment No. 1 dated as of July 2, 2004 to the Credit
Agreement dated as of December 16, 2002, as amended and
restated as of September 26, 2003, among Denny's, Inc.,
Denny's Realty, Inc., Denny's Corporation, Denny's Holdings,
Inc., DFO, Inc., the Lenders from time to time party thereto,
JPMorgan Chase Bank, as Administrative Agent, and Wells Fargo
Foothill, Inc. (f/k/a Foothill Capital Corporation), as
Syndication Agent.
20
10.2 Amendment No. 2 dated as of July 27, 2004 to the Credit
Agreement dated as of December 16, 2002, as amended and
restated as of September 26, 2003 and as amended by Amendment
No. 1 thereto dated of July 2, 2004, among Denny's, Inc.,
Denny's Realty, Inc., Denny's Corporation, Denny's Holdings,
Inc., DFO, Inc., the Lenders from time to time party thereto,
JPMorgan Chase Bank, as Administrative Agent, and Wells Fargo
Foothill, Inc. (f/k/a Foothill Capital Corporation), as
Syndication Agent.
31.1 Certification of Nelson J. Marchioli, 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 Andrew F. Green, Senior 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 Nelson J. Marchioli, President and Chief
Executive Officer of Denny's Corporation and Andrew F. Green,
Senior 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.
b. On April 8, 2004, we reported on Form 8-K (under Items 7 and 12) that we
issued a press release on April 8, 2004, announcing same-store sales for
our company-owned restaurants during the five weeks period and the quarter
ended March 31, 2004.
On April 14, 2004, we reported on Form 8-K (under Items 5 and 12) that we
issued a press release on April 13, 2004, reporting the passing of the
Chairman of our Board of Directors, Charles F. Moran.
On April 21, 2004, we furnished on Form 8-K (under Items 7 and 9)
information provided to an ad hoc committee of holders of our 11 1/4%
Senior Notes on or about March 15, 2004.
On April 23, 2004, we reported on Form 8-K (under Items 7 and 9) that we
issued a press release on April 22, 2004, regarding our Current Report on
Form 8-K dated April 21, 2004, which furnished certain projected financial
information under Regulation FD.
On May 6, 2004, we reported on Form 8-K (under Items 7 and 12) that we
issued a press release on May 6, 2004, announcing financial results for
the first quarter ended March 31, 2004.
On June 4, 2004, we reported on Form 8-K (under Items 7 and 12) that we
issued a press release on June 4, 2004, announcing same-store sales for
our company-owned restaurants during the four week period ended May 26,
2004.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENNY'S CORPORATION
Date: August 16, 2004 By: /s/ Rhonda J. Parish
--------------------
Rhonda J. Parish
Executive Vice President,
General Counsel and Secretary
Date: August 16, 2004 By: /s/ Andrew F. Green
-------------------
Andrew F. Green
Senior Vice President and
Chief Financial Officer
22