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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 June 30, 2021
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 area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
$.01 Par Value, Common Stock |  | DENN |  | The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer | ☐ | Accelerated Filer | ý | Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | Emerging Growth Company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ý
As of July 29, 2021, 64,199,998 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

TABLE OF CONTENTS

| Page
PART I - FINANCIAL INFORMATION |
Item 1. Financial Statements (Unaudited) |
Condensed Consolidated Balance Sheets | 3
Condensed Consolidated Statements of Operations | 4
Condensed Consolidated Statements of Comprehensive Income (Loss) | 5
Condensed Consolidated Statements of Shareholders' Deficit | 6
Condensed Consolidated Statements of Cash Flows | 8
Notes to Condensed Consolidated Financial Statements | 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 28
Item 4. Controls and Procedures | 28
PART II - OTHER INFORMATION |
Item 1. Legal Proceedings | 29
Item 1A. Risk Factors | 29
Item 6. Exhibits | 30
Signatures | 31

2

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Denny’s Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

| June 30, 2021 |  | December 30, 2020
| (In thousands)
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 10,882 |  |  | $ | 3,892 |
Investments | 2,069 |  |  | 2,272 |
Receivables, net | 20,407 |  |  | 21,349 |
Inventories | 1,280 |  |  | 1,181 |
Assets held for sale | 1,621 |  |  | 1,125 |
Prepaid and other current assets | 12,168 |  |  | 18,847 |
Total current assets | 48,427 |  |  | 48,666 |
Property, net of accumulated depreciation of $149,516 and $146,583, respectively | 82,490 |  |  | 86,154 |
Financing lease right-of-use assets, net of accumulated amortization of $10,684 and $9,907, respectively | 9,437 |  |  | 9,830 |
Operating lease right-of-use assets, net | 135,229 |  |  | 139,534 |
Goodwill | 36,884 |  |  | 36,884 |
Intangible assets, net | 50,892 |  |  | 51,559 |
Deferred financing costs, net | 1,727 |  |  | 2,414 |
Deferred income taxes, net | 19,854 |  |  | 23,210 |
Other noncurrent assets | 33,407 |  |  | 32,698 |
Total assets | $ | 418,347 |  |  | $ | 430,949 |
Liabilities |  |  |
Current liabilities: |  |  |
Current finance lease liabilities | $ | 1,637 |  |  | $ | 1,839 |
Current operating lease liabilities | 16,348 |  |  | 16,856 |
Accounts payable | 14,376 |  |  | 12,021 |
Other current liabilities | 55,251 |  |  | 46,462 |
Total current liabilities | 87,612 |  |  | 77,178 |
Long-term liabilities: |  |  |
Long-term debt | 180,000 |  |  | 210,000 |
Noncurrent finance lease liabilities | 13,265 |  |  | 13,530 |
Noncurrent operating lease liabilities | 132,959 |  |  | 137,534 |
Liability for insurance claims, less current portion | 9,602 |  |  | 10,309 |
Other noncurrent liabilities | 94,332 |  |  | 112,844 |
Total long-term liabilities | 430,158 |  |  | 484,217 |
Total liabilities | 517,770 |  |  | 561,395 |
Shareholders' deficit |  |  |
Common stock $0.01 par value; 135,000 shares authorized; June 30, 2021: 64,200 shares issued and outstanding; December 30, 2020: 63,962 shares issued and outstanding | $ | 642 |  |  | $ | 640 |
Paid-in capital | 129,176 |  |  | 123,833 |
Deficit | (172,161) |  |  | (194,514) |
Accumulated other comprehensive loss, net | (57,080) |  |  | (60,405) |
Total shareholders' deficit | (99,423) |  |  | (130,446) |
Total liabilities and shareholders' deficit | $ | 418,347 |  |  | $ | 430,949 |

See accompanying notes
3

Denny’s Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

| Quarter Ended |  | Two Quarters Ended
| June 30, 2021 |  | June 24, 2020 |  | June 30, 2021 |  | June 24, 2020
| (In thousands, except per share amounts)
Revenue: |  |  |  |  |  |  |
Company restaurant sales | $ | 47,572 |  |  | $ | 15,128 |  |  | $ | 81,141 |  |  | $ | 57,419 |
Franchise and license revenue | 58,593 |  |  | 25,033 |  |  | 105,600 |  |  | 79,437 |
Total operating revenue | 106,165 |  |  | 40,161 |  |  | 186,741 |  |  | 136,856 |
Costs of company restaurant sales, excluding depreciation and amortization: |  |  |  |  |  |  |
Product costs | 11,447 |  |  | 4,305 |  |  | 19,719 |  |  | 14,435 |
Payroll and benefits | 16,970 |  |  | 8,039 |  |  | 29,935 |  |  | 25,145 |
Occupancy | 2,844 |  |  | 2,728 |  |  | 5,694 |  |  | 5,891 |
Other operating expenses | 6,552 |  |  | 4,534 |  |  | 12,629 |  |  | 10,253 |
Total costs of company restaurant sales | 37,813 |  |  | 19,606 |  |  | 67,977 |  |  | 55,724 |
Costs of franchise and license revenue, excluding depreciation and amortization | 28,735 |  |  | 15,244 |  |  | 52,493 |  |  | 44,414 |
General and administrative expenses | 17,548 |  |  | 13,153 |  |  | 34,495 |  |  | 20,895 |
Depreciation and amortization | 3,897 |  |  | 4,058 |  |  | 7,558 |  |  | 8,204 |
Operating (gains), losses and other charges, net | (113) |  |  | 1,627 |  |  | 419 |  |  | 3,100 |
Total operating costs and expenses, net | 87,880 |  |  | 53,688 |  |  | 162,942 |  |  | 132,337 |
Operating income (loss) | 18,285 |  |  | (13,527) |  |  | 23,799 |  |  | 4,519 |
Interest expense, net | 4,066 |  |  | 4,947 |  |  | 8,343 |  |  | 8,898 |
Other nonoperating expense (income), net | 16,251 |  |  | 9,565 |  |  | (13,797) |  |  | 12,328 |
Income (loss) before income taxes | (2,032) |  |  | (28,039) |  |  | 29,253 |  |  | (16,707) |
Provision for (benefit from) income taxes | (1,204) |  |  | (5,074) |  |  | 6,900 |  |  | (2,755) |
Net income (loss) | $ | (828) |  |  | $ | (22,965) |  |  | $ | 22,353 |  |  | $ | (13,952) |
Basic net income (loss) per share | $ | (0.01) |  |  | $ | (0.41) |  |  | $ | 0.34 |  |  | $ | (0.25) |
Diluted net income (loss) per share | $ | (0.01) |  |  | $ | (0.41) |  |  | $ | 0.34 |  |  | $ | (0.25) |
Basic weighted average shares outstanding | 65,294 |  |  | 55,686 |  |  | 65,273 |  |  | 55,993 |
Diluted weighted average shares outstanding | 65,294 |  |  | 55,686 |  |  | 65,789 |  |  | 55,993 |

See accompanying notes
4

Denny’s Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

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

See accompanying notes
5

Denny’s Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Deficit
For the Quarter Ended June 30, 2021 and June 24, 2020
(Unaudited)

| Common Stock |  | Treasury Stock |  | Paid-in Capital |  | Deficit |  | Accumulated Other Comprehensive Loss, Net |  | Total Shareholders’ Deficit
| Shares |  | Amount |  | Shares |  | Amount |  |  |  |
| (In thousands)
Balance, March 31, 2021 | 64,145 |  |  | $ | 641 |  |  | — |  |  | $ | — |  |  | $ | 125,950 |  |  | $ | (171,333) |  |  | $ | (57,330) |  |  | (102,072) |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (828) |  |  | — |  |  | (828) |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 250 |  |  | 250 |
Share-based compensation on equity classified awards, net of withholding tax | — |  |  | — |  |  | — |  |  | — |  |  | 3,227 |  |  | — |  |  | — |  |  | 3,227 |
Issuance of common stock for share-based compensation | 55 |  |  | 1 |  |  | — |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | — |
Balance, June 30, 2021 | 64,200 |  |  | $ | 642 |  |  | — |  |  | $ | — |  |  | $ | 129,176 |  |  | $ | (172,161) |  |  | $ | (57,080) |  |  | $ | (99,423) |

| Common Stock |  | Treasury Stock |  | Paid-in Capital |  | Deficit |  | Accumulated Other Comprehensive Loss, Net |  | Total Shareholders’ Deficit
| Shares |  | Amount |  | Shares |  | Amount |  |  |  |
| (In thousands)
Balance, March 25, 2020 | 109,677 |  |  | $ | 1,097 |  |  | (54,010) |  |  | $ | (553,973) |  |  | $ | 599,401 |  |  | $ | (180,385) |  |  | $ | (66,632) |  |  | $ | (200,492) |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (22,965) |  |  | — |  |  | (22,965) |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,415 |  |  | 4,415 |
Share-based compensation on equity classified awards, net of withholding tax | — |  |  | — |  |  | — |  |  | — |  |  | 1,469 |  |  | — |  |  | — |  |  | 1,469 |
Issuance of common stock for share-based compensation | 25 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Exercise of common stock options | 17 |  |  | — |  |  | — |  |  | — |  |  | 66 |  |  | — |  |  | — |  |  | 66 |
Balance, June 24, 2020 | 109,719 |  |  | $ | 1,097 |  |  | (54,010) |  |  | $ | (553,973) |  |  | $ | 600,936 |  |  | $ | (203,350) |  |  | $ | (62,217) |  |  | $ | (217,507) |

See accompanying notes
6

Denny’s Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Deficit
For the Two Quarters Ended June 30, 2021 and June 24, 2020
(Unaudited)

| Common Stock |  | Treasury Stock |  | Paid-in Capital |  | Deficit |  | Accumulated Other Comprehensive Loss, Net |  | Total Shareholders’ Deficit
| Shares |  | Amount |  | Shares |  | Amount |  |  |  |
| (In thousands)
Balance, December 30, 2020 | 63,962 |  |  | $ | 640 |  |  | — |  |  | $ | — |  |  | $ | 123,833 |  |  | $ | (194,514) |  |  | $ | (60,405) |  |  | $ | (130,446) |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 22,353 |  |  | — |  |  | 22,353 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,325 |  |  | 3,325 |
Share-based compensation on equity classified awards, net of withholding tax | — |  |  | — |  |  | — |  |  | — |  |  | 5,229 |  |  | — |  |  | — |  |  | 5,229 |
Issuance of common stock for share-based compensation | 208 |  |  | 2 |  |  | — |  |  | — |  |  | (2) |  |  | — |  |  | — |  |  | — |
Exercise of common stock options | 30 |  |  | — |  |  | — |  |  | — |  |  | 116 |  |  | — |  |  | — |  |  | 116 |
Balance, June 30, 2021 | 64,200 |  |  | $ | 642 |  |  | — |  |  | $ | — |  |  | $ | 129,176 |  |  | $ | (172,161) |  |  | $ | (57,080) |  |  | $ | (99,423) |

| Common Stock |  | Treasury Stock |  | Paid-in Capital |  | Deficit |  | Accumulated Other Comprehensive Loss, Net |  | Total Shareholders’ Deficit
| Shares |  | Amount |  | Shares |  | Amount |  |  |  |
| (In thousands)
Balance, December 25, 2019 | 109,415 |  |  | $ | 1,094 |  |  | (52,320) |  |  | $ | (519,780) |  |  | $ | 603,980 |  |  | $ | (189,398) |  |  | $ | (33,960) |  |  | $ | (138,064) |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (13,952) |  |  | — |  |  | (13,952) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (28,257) |  |  | (28,257) |
Share-based compensation on equity classified awards, net of withholding tax | — |  |  | — |  |  | — |  |  | — |  |  | (3,107) |  |  | — |  |  | — |  |  | (3,107) |
Purchase of treasury stock | — |  |  | — |  |  | (1,690) |  |  | (34,193) |  |  | — |  |  | — |  |  | — |  |  | (34,193) |
Issuance of common stock for share-based compensation | 287 |  |  | 3 |  |  | — |  |  | — |  |  | (3) |  |  | — |  |  | — |  |  | — |
Exercise of common stock options | 17 |  |  | — |  |  | — |  |  | — |  |  | 66 |  |  | — |  |  | — |  |  | 66 |
Balance, June 24, 2020 | 109,719 |  |  | $ | 1,097 |  |  | (54,010) |  |  | $ | (553,973) |  |  | $ | 600,936 |  |  | $ | (203,350) |  |  | $ | (62,217) |  |  | $ | (217,507) |

See accompanying notes
7

Denny’s Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

| Two Quarters Ended
| June 30, 2021 |  | June 24, 2020
| (In thousands)
Cash flows from operating activities: |  |  |
Net income (loss) | $ | 22,353 |  |  | $ | (13,952) |
Adjustments to reconcile net income (loss) to cash flows provided by (used in) operating activities: |  |  |
Depreciation and amortization | 7,558 |  |  | 8,204 |
Operating (gains), losses and other charges, net | 419 |  |  | 3,100 |
(Gains) losses and amortization on interest rate swap derivatives, net | (12,506) |  |  | 11,466 |
Amortization of deferred financing costs | 688 |  |  | 340 |
Losses (gains) on investments | 3 |  |  | (91) |
(Gains) losses on termination of leases | (72) |  |  | 53 |
Deferred income tax expense (benefit) | 2,211 |  |  | (3,705) |
Share-based compensation expense (benefit) | 6,860 |  |  | (26) |
Changes in assets and liabilities: |  |  |
Receivables | 757 |  |  | 9,342 |
Inventories | (98) |  |  | 175 |
Prepaids and other current assets | 6,677 |  |  | (2,593) |
Other noncurrent assets | (1,317) |  |  | 106 |
Operating lease assets and liabilities | (821) |  |  | 1,769 |
Accounts payable | 5,620 |  |  | (537) |
Accrued payroll | 1,992 |  |  | (11,519) |
Accrued taxes | 434 |  |  | (712) |
Other accrued liabilities | 4,649 |  |  | (6,551) |
Other noncurrent liabilities | (2,036) |  |  | (2,827) |
Net cash flows provided by (used in) operating activities | 43,371 |  |  | (7,958) |
Cash flows from investing activities: |  |  |
Capital expenditures | (3,108) |  |  | (4,476) |
Proceeds from sales of restaurants, real estate and other assets | 1,612 |  |  | 2,208 |
Investment purchases | — |  |  | (1,400) |
Proceeds from sale of investments | 200 |  |  | 2,900 |
Collections on notes receivable | 383 |  |  | 918 |
Issuance of notes receivable | (94) |  |  | (484) |
Net cash flows used in investing activities | (1,007) |  |  | (334) |
Cash flows from financing activities: |  |  |
Revolver borrowings | 9,500 |  |  | 130,000 |
Revolver payments | (39,500) |  |  | (63,000) |
Long-term debt payments | (980) |  |  | (594) |
Proceeds from exercise of stock options | 116 |  |  | 66 |
Tax withholding on share-based payments | (1,377) |  |  | (3,036) |
Deferred financing costs | (8) |  |  | (982) |
Purchase of treasury stock | — |  |  | (36,008) |
Net bank overdrafts | (3,125) |  |  | (449) |
Net cash flows provided by (used in) financing activities | (35,374) |  |  | 25,997 |
Increase in cash and cash equivalents | 6,990 |  |  | 17,705 |
Cash and cash equivalents at beginning of period | 3,892 |  |  | 3,372 |
Cash and cash equivalents at end of period | $ | 10,882 |  |  | $ | 21,077 |

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 June 30, 2021, the Denny's brand consisted of 1,645 restaurants, 1,580 of which were franchised/licensed restaurants and 65 of which were company operated.
The global crisis resulting from the spread of coronavirus ("COVID-19") has had a substantial impact on our restaurant operations starting in the quarter ended March 25, 2020 with continuing impacts into the current quarter ended June 30, 2021. While we have seen improvements compared to earlier periods during the COVID-19 pandemic, we cannot currently estimate the duration or future financial impact of the COVID-19 pandemic on our business. However, we expect that the COVID-19 pandemic will continue to impact our results of operations for the balance of 2021.
Our unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Therefore, certain information and notes normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. In our opinion, all adjustments considered necessary for a fair presentation of the interim periods presented have been included. Such adjustments are of a normal and recurring nature. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates are reasonable.
These interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the fiscal year ended December 30, 2020 which are contained in our audited Annual Report on Form 10-K for the fiscal year ended December 30, 2020. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire fiscal year ending December 29, 2021. Our significant interim accounting policies include the recognition of advertising and marketing costs, generally in proportion to revenue, and the recognition of income taxes using an estimated annual effective rate.
Note 2. Summary of Significant Accounting Policies
Newly Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which modifies Topic 740 to simplify the accounting for income taxes. ASU 2019-12 is effective for financial statements issued for annual periods beginning after December 15, 2020, and for the interim periods therein. The adoption of ASU 2019-12 did not have a significant impact on the Company’s consolidated financial position or results of operations.
Accounting Standards to be Adopted
In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” which clarified the guidance issued in March 2020, ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The guidance provides optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The guidance is effective through December 31, 2022. The Company is currently evaluating the impact that the adoption of this new guidance will have on our consolidated financial position or results of operations and has not adopted any of the transition relief available under the new guidance as of June 30, 2021.
We reviewed all other newly issued accounting pronouncements and concluded that they are either not applicable to our business or are not expected to have a material effect on our consolidated financial statements as a result of future adoption.
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Note 3. Receivables
Receivables consisted of the following:

| June 30, 2021 |  | December 30, 2020
| (In thousands)
Receivables, net: |  |  |
Trade accounts receivable from franchisees | $ | 15,580 |  |  | $ | 15,535 |
Financing receivables from franchisees | 1,082 |  |  | 2,104 |
Vendor receivables | 2,023 |  |  | 2,199 |
Credit card receivables | 684 |  |  | 542 |
Other | 2,062 |  |  | 2,668 |
Allowance for doubtful accounts | (1,024) |  |  | (1,699) |
Total receivables, net | $ | 20,407 |  |  | $ | 21,349 |
Other noncurrent assets: |  |  |
Financing receivables from franchisees | $ | 398 |  |  | $ | 502 |

Note 4. Intangible Assets
Intangible assets consisted of the following:

| June 30, 2021 |  | December 30, 2020
| 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 |  |  | — |  |  | 120 |  |  | — |
Intangible assets with definite lives: |  |  |  |  |  |  |
Reacquired franchise rights | 12,218 |  |  | 5,533 |  |  | 12,218 |  |  | 4,866 |
Intangible assets, net | $ | 56,425 |  |  | $ | 5,533 |  |  | $ | 56,425 |  |  | $ | 4,866 |

Note 5. Other Current Liabilities
Other current liabilities consisted of the following:

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

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Note 6. Fair Value of Financial Instruments
Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

| Total |  | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| (In thousands)
Fair value measurements as of June 30, 2021: |  |  |  |  |  |  |
Deferred compensation plan investments (1) | $ | 14,049 |  |  | $ | 14,049 |  |  | $ | — |  |  | $ | — |
Interest rate swaps (2) | (57,738) |  |  | — |  |  | (57,738) |  |  | — |
Investments (3) | 2,069 |  |  | — |  |  | 2,069 |  |  | — |
Total | $ | (41,620) |  |  | $ | 14,049 |  |  | $ | (55,669) |  |  | $ | — |
Fair value measurements as of December 30, 2020: |  |  |  |  |  |  |
Deferred compensation plan investments (1) | $ | 13,627 |  |  | $ | 13,627 |  |  | $ | — |  |  | $ | — |
Interest rate swaps (2) | (76,445) |  |  | — |  |  | (76,445) |  |  | — |
Investments (3) | 2,272 |  |  | — |  |  | 2,272 |  |  | — |
Total | $ | (60,546) |  |  | $ | 13,627 |  |  | $ | (74,173) |  |  | $ | — |

(1) The fair values of our deferred compensation plan investments are based on the closing market prices of the elected investments.
(2) The fair values of our interest rate swaps are based upon Level 2 inputs, which include valuation models. The key inputs for the valuation models are quoted market prices, interest rates and forward yield curves. See Note 7 for details on the interest rate swaps.
(3) The fair values of our investments are valued using a readily determinable net asset value per share based on the fair value of the underlying securities. There are no significant redemption restrictions associated with these investments.
The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued expenses are deemed to approximate fair value due to the immediate or short-term maturity of these instruments. The fair value of notes receivable approximates the carrying value after consideration of recorded allowances and related risk-based interest rates. The outstanding senior secured revolver is carried at historical cost, which approximates fair value. The fair value of our senior secured revolver approximates its carrying value since it is a variable rate facility (Level 2).
Note 7. Long-Term Debt
Denny's and certain of its subsidiaries have a credit facility, as amended, consisting of a five-year $375 million senior secured revolver (with a $30 million letter of credit sublimit) which was reduced to $350 million on July 1, 2021. As of June 30, 2021, we had outstanding revolver loans of $180.0 million and outstanding letters of credit under the credit facility of $15.7 million. These balances resulted in availability of $179.3 million as of June 30, 2021 under the credit facility prior to considering the liquidity covenant in our credit facility. Factoring in the liquidity covenant, our availability was $120.2 million as of June 30, 2021. The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit facility is guaranteed by Denny's and its material subsidiaries and is secured by assets of Denny's and its subsidiaries, including the stock of its subsidiaries (other than our insurance captive subsidiary).
As of June 30, 2021, borrowings under the credit facility bore interest at a rate of LIBOR plus 3.00% and the commitment fee, paid on the unused portion of the credit facility, was set to 0.40%. The maturity date for the credit facility is October 26, 2022.
The Company is prohibited from paying dividends and making stock repurchases and other general investments through the delivery of its fiscal third quarter 2021 results. Limitations on capital expenditures of $12 million are in effect for the period of May 13, 2020 through September 29, 2021. As of June 30, 2021, approximately $6.4 million of the $12 million has been utilized.
The consolidated fixed charge coverage ratio covenant was a minimum of 1.00x for the quarter ended June 30, 2021, adjusting to 1.25x for the quarter ending September 29, 2021, and 1.50x for the quarter ending December 29, 2021 and thereafter. The consolidated leverage ratio covenant was a maximum of 5.25x as of June 30, 2021, stepping down to 4.75x as of September 29, 2021, and 4.00x as of December 29, 2021 and thereafter. In addition, the Company is subject to a monthly minimum liquidity covenant, defined as the sum of unrestricted cash and revolver availability, of $70 million, until the date of delivery of the
11

financial statements for the fiscal quarter ending September 29, 2021. We were in compliance with all financial covenants as of June 30, 2021.
Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 3.11% and 3.15% as of June 30, 2021 and December 30, 2020, respectively. Taking into consideration our interest rate swaps that are designated as cash flow hedges, the weighted-average interest rate of outstanding revolver loans was 5.31% and 5.01% as of June 30, 2021 and December 30, 2020, respectively.
Interest Rate Hedges
We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt. We initially designated the interest rate swaps as cash flow hedges of our exposure to variability in future cash flows attributable to variable interest payments due on forecasted notional amounts. A summary of our interest rate swaps as of June 30, 2021 is as follows:

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

(1) The notional amounts of the swaps entered into on February 15, 2018 increase annually until they reach the maximum notional amount of $425.0 million on September 28, 2029.
Swaps Designated as Cash Flow Hedges
To the extent the swaps are highly effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swaps are not included in the Consolidated Statements of Operations but are reported as a component of other comprehensive income (loss). The interest rate swaps entered into in 2015 are designated as cash flow hedges with unrealized gain and losses recorded as a component of accumulated other comprehensive loss, net.
As of June 30, 2021, the fair value of swaps designated as cash flow hedges was a liability of $11.7 million and was recorded as a component of other noncurrent liabilities with an offsetting amount (before taxes) recorded as a component of accumulated other comprehensive loss, net in our Condensed Consolidated Balance Sheets. See Note 13 for amounts recorded in accumulated other comprehensive loss related to interest rate swaps. We expect to reclassify approximately $4.0 million from accumulated other comprehensive loss, net to interest expense, net in our Consolidated Statements of Operations related to swaps designated as cash flow hedges during the next 12 months.
Dedesignated Interest Rate Hedges
During the year ended December 30, 2020, we determined that a portion of the underlying cash flows related to our hedging relationship entered into in 2018 (“2018 Swaps”) were no longer probable of occurring over the term of the interest rate swaps. Accordingly, we dedesignated the cash flow relationship and discontinued hedge accounting treatment for the 2018 Swaps. As a result, we reclassified a portion of losses from accumulated other comprehensive loss, net to other nonoperating expense (income), net in our Consolidated Statements of Operations and began amortizing the remaining amounts of unrealized losses related to the 2018 Swaps from accumulated other comprehensive loss, net into our Consolidated Statements of Operations as a component of interest expense, net over the remaining term of the 2018 Swaps. For the quarter and two quarters ended June 30, 2021, we reclassified unrealized losses of approximately less than $0.1 million and $0.2 million, respectively, to interest expense, net related to the 2018 Swaps. At June 30, 2021, approximately $64.2 million (before taxes) of unrealized losses remained in accumulated other comprehensive loss, net. We expect to amortize less than $0.1 million from accumulated other comprehensive loss, net to interest expense, net in our Consolidated Statements of Operations related to dedesignated interest rate swaps during the next 12 months.
12

As a result of the dedesignated cash flow relationship related to the 2018 Swaps, changes in the fair value of the 2018 Swaps are recorded as a component of other nonoperating expense (income), net in our Consolidated Statements of Operations. For the quarter and two quarters ended June 30, 2021, we recorded approximately $17.2 million of expense and $12.7 million of income, respectively, as a component of nonoperating expense (income) related to the 2018 Swaps resulting from changes in fair value. As of June 30, 2021, the fair value of the dedesignated interest rate swaps was a liability of $46.0 million and was recorded as a component of other noncurrent liabilities in our Condensed Consolidated Balance Sheets.
Note 8. Revenues
Our revenues are derived primarily from two sales channels, which we operate as one segment: company restaurants and franchised and licensed restaurants. The following table disaggregates our revenue by sales channel and type of good or service:

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

Franchise occupancy revenue consisted of the following:

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

Balances related to contracts with customers consist of receivables, deferred franchise revenue and deferred gift card revenue. See Note 3 for details on our receivables.
Deferred franchise revenue consists primarily of the unamortized portion of initial franchise fees that are currently being amortized into revenue and amounts related to development agreements and unopened restaurants that we will begin amortizing into revenue when the related restaurants are opened. 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 30, 2020 | $ | 20,806 |
Fees received from franchisees | 303 |
Revenue recognized (1) | (1,175) |
Balance, June 30, 2021 | 19,934 |
Less current portion included in other current liabilities | 1,946 |
Deferred franchise revenue included in other noncurrent liabilities | $ | 17,988 |

(1) Of this amount $1.2 million was included in the deferred franchise revenue balance as of December 30, 2020.
13

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 June 30, 2021 and December 30, 2020 was $5.6 million and $6.1 million, respectively. During the two quarters ended June 30, 2021, we recognized revenue of $0.2 million from gift card redemptions at company restaurants.
Note 9. Operating (Gains), Losses and Other Charges, Net
Operating (gains), losses and other charges, net consisted of the following:

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

During the two quarters ended June 30, 2021, gains on sales of assets and other, net were primarily related to the sale of one parcel of real estate. During the two quarters ended June 24, 2020, (gains) losses on sales of assets and other, net were primarily related to the sale of two real estate parcels.
As of June 30, 2021, we had recorded assets held for sale consisting of property at their carrying amount of $1.6 million related to two parcels of real estate. As of December 30, 2020, we had recorded assets held for sale at their carrying amount of $1.1 million (consisting of property of $1.0 million and other assets of $0.1 million) related to two parcels of real estate.
Restructuring charges and exit costs consisted of the following:

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

Exit costs primarily consist of costs related to closed restaurants. Exit cost liabilities were $0.1 million as of both June 30, 2021 and December 30, 2020. Exit cost liabilities related to lease costs are included as a component of operating lease liabilities in our Condensed Consolidated Balance Sheets.
As of June 30, 2021 and December 30, 2020, we had accrued severance and other restructuring charges of $0.7 million and $0.6 million, respectively. The balance as of June 30, 2021 is expected to be paid during the next 12 months.
Note 10. Share-Based Compensation
Total share-based compensation included as a component of general and administrative expenses was as follows:

| Quarter Ended |  | Two Quarters Ended
| June 30, 2021 |  | June 24, 2020 |  | June 30, 2021 |  | June 24, 2020
| (In thousands)
Employee share awards | $ | 3,164 |  |  | $ | 1,326 |  |  | $ | 6,417 |  |  | $ | (420) |
Restricted stock units for board members | 224 |  |  | 185 |  |  | 443 |  |  | 394 |
Total share-based compensation | $ | 3,388 |  |  | $ | 1,511 |  |  | $ | 6,860 |  |  | $ | (26) |

14

Employee Share Awards
During the two quarters ended June 30, 2021, we granted certain employees approximately 0.5 million performance share units ("PSUs") with a grant date fair value of $24.74 per share that vest based on the total shareholder return (“TSR”) of our common stock compared to the TSRs of a group of peer companies (from 0% to 200% of the target award). As the TSR based performance shares contain a market condition, a Monte Carlo valuation was used to determine the grant date fair value. The performance period for these PSUs is the three year fiscal period beginning December 31, 2020 and ending December 27, 2023. The PSUs will completely vest and be earned at the end of the performance period at which point the TSR will be determined.
We also granted certain employees approximately 0.2 million restricted stock units ("RSUs") with a grant date fair value of $15.91 per share. The RSUs vest evenly over the three year period ending December 27, 2023.
During the two quarters ended June 30, 2021, we issued 0.2 million shares of common stock related to vested performance share units. In addition, 0.1 million shares of common stock were withheld in lieu of taxes related to vested performance share units.
We recognize compensation cost associated with our PSU and RSU awards on a straight-line basis over the entire performance period of the awards. As of June 30, 2021, we had approximately $19.1 million of unrecognized compensation cost related to unvested performance share awards and restricted share awards outstanding, which have a weighted average remaining contractual term of 2.0 years.
Restricted Stock Units for Board Members
During the quarter and two quarters ended June 30, 2021, we granted less than 0.1 million restricted stock units (which are equity classified) with a weighted average grant date fair value of $17.35 per unit to non-employee members of our Board of Directors. The restricted stock units vest after a one year service period. A director may elect to convert these awards into shares of common stock either on a specific date in the future (while still serving as a member of our Board of Directors), upon termination as a member of our Board of Directors, or in three equal annual installments commencing after termination of service as a member of our Board.
During the quarter and two quarters ended June 30, 2021, less than 0.1 million restricted stock units were converted into shares of common stock.
As of June 30, 2021, we had approximately $0.8 million of unrecognized compensation cost related to unvested restricted stock unit awards outstanding, which have a weighted average remaining contractual term of 0.9 years.
Note 11. Income Taxes
The effective income tax rate was 59.3% for the quarter and 23.6% for the two quarters ended June 30, 2021, compared to 18.1% and 16.5% for the prior year periods, respectively. The 2021 quarterly and year-to-date rates included the impact of excess tax benefits relating to share-based compensation of 13.4% and (1.2)%, respectively. The 2020 quarterly and year-to-date rates included a benefit from the reclassification of cash flow derivatives from accumulated other comprehensive loss, net of 7.0% and 11.7%, respectively.
15

Note 12. Net Income (Loss) Per Share
The amounts used for the basic and diluted net income (loss) per share calculations are summarized below:

| Quarter Ended |  | Two Quarters Ended
| June 30, 2021 |  | June 24, 2020 |  | June 30, 2021 |  | June 24, 2020
| (In thousands, except per share amounts)
Net income (loss) | $ | (828) |  |  | $ | (22,965) |  |  | $ | 22,353 |  |  | $ | (13,952) |
Weighted average shares outstanding - basic | 65,294 |  |  | 55,686 |  |  | 65,273 |  |  | 55,993 |
Effect of dilutive share-based compensation awards(1) | — |  |  | — |  |  | 516 |  |  | — |
Weighted average shares outstanding - diluted | 65,294 |  |  | 55,686 |  |  | 65,789 |  |  | 55,993 |
Basic net income (loss) per share | $ | (0.01) |  |  | $ | (0.41) |  |  | $ | 0.34 |  |  | $ | (0.25) |
Diluted net income (loss) per share | $ | (0.01) |  |  | $ | (0.41) |  |  | $ | 0.34 |  |  | $ | (0.25) |
Anti-dilutive share-based compensation awards(1) | 998 |  |  | 3,493 |  |  | 483 |  |  | 3,493 |

(1) For the quarter ended June 30, 2021 and for the quarter and two quarters ended June 24, 2020, share-based compensation awards have been omitted from the calculations because they have an anti-dilutive effect.
Note 13. Shareholders' Deficit
Share Repurchases
We suspended share repurchases as of February 27, 2020 and terminated our previously approved Rule 10b5-1 Repurchase Plan effective March 16, 2020 in light of uncertain market conditions arising from the COVID-19 pandemic. Under our amended credit agreement, we are prohibited, until the date of delivery of our financial statements for the fiscal quarter ending September 29, 2021, from making any stock repurchases.
Prior to suspending share repurchases, during the quarter ended March 25, 2020, we repurchased a total of 1.7 million shares of our common stock for approximately $34.2 million. During the quarter ended March 25, 2020, we completed the $200 million share repurchase program that was approved by the Board of Directors in October 2017. In December 2019, our Board of Directors approved a share repurchase program authorizing us to repurchase up to $250 million of our common stock (in addition to the October 2017 authorization). At June 30, 2021, there was approximately $248.0 million remaining that can be used to repurchase our common stock under the current program. Repurchased shares were included as treasury stock in our Condensed Consolidated Balance Sheets and our Condensed Consolidated Statement of Shareholders' Deficit. In the fourth quarter of fiscal 2020, the Board approved the retirement of 54.0 million shares of treasury stock at a weighted average share price of $10.26. As of June 30, 2021, no shares remained in treasury stock.
16

Accumulated Other Comprehensive Loss, Net
The components of the change in accumulated other comprehensive loss, net were as follows:

| Defined Benefit Plans |  | Derivatives |  | Accumulated Other Comprehensive Loss, Net
| (In thousands)
Balance as of December 30, 2020 | $ | (978) |  |  | $ | (59,427) |  |  | $ | (60,405) |
Amortization of net loss (1) | 80 |  |  | — |  |  | 80 |
Changes in the fair value of cash flow derivatives | — |  |  | 2,225 |  |  | 2,225 |
Reclassification of cash flow derivatives to interest expense, net (2) | — |  |  | 2,000 |  |  | 2,000 |
Amortization of unrealized losses related to dedesignated derivatives to interest expense, net (3) | — |  |  | 166 |  |  | 166 |
Income tax expense related to items of other comprehensive income | (21) |  |  | (1,125) |  |  | (1,146) |
Balance as of June 30, 2021 | $ | (919) |  |  | $ | (56,161) |  |  | $ | (57,080) |

(1) Amount related to our defined benefit plans that was reclassified from accumulated other comprehensive loss, net and included as a component of pension expense within general and administrative expenses in our Condensed Consolidated Statements of Operations during the two quarters ended June 30, 2021.
(2) Amounts reclassified from accumulated other comprehensive loss, net into interest expense, net in our Condensed Consolidated Statements of Operations represent payments either received from or made to the counterparty for the interest rate swaps. See Note 7 for additional details.
(3) The losses related to the 2018 Swaps will continue to be included in accumulated other comprehensive loss, net and will be amortized as a component of interest expense, net in our Consolidated Statements of Operations over the remaining term of the 2018 Swaps. For the two quarters ended June 30, 2021, we amortized approximately $0.2 million of losses to interest expense, net related to the 2018 Swaps. We expect to amortize less than $0.1 million from accumulated other comprehensive loss related to our interest rate swaps during the next 12 months. See Note 7 for additional details.
Note 14. Commitments and Contingencies
There are various claims and pending legal actions against or indirectly involving us, incidental to and arising out of the ordinary course of the business. In the opinion of management, based upon information currently available, the ultimate liability with respect to these proceedings and claims will not materially affect our consolidated results of operations or financial position.
Note 15. Supplemental Cash Flow Information

| Two Quarters Ended
| June 30, 2021 |  | June 24, 2020
| (In thousands)
Income taxes paid, net | $ | 1,942 |  |  | $ | 277 |
Interest paid | $ | 8,478 |  |  | $ | 8,057 |
Noncash investing and financing activities: |  |  |
Issuance of common stock, pursuant to share-based compensation plans | $ | 3,087 |  |  | $ | 5,808 |
Execution of finance leases | $ | 464 |  |  | $ | 11 |

17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. The Company urges caution in considering its current trends and any outlook on its operations and financial results disclosed in this report. In addition, certain matters discussed in this report may constitute forward-looking statements. These forward-looking statements, which reflect management's best judgment based on factors currently known, are intended to speak only as of the date such statements are made and involve risks, uncertainties, and other factors that may cause the actual performance of Denny’s Corporation, its subsidiaries, and underlying restaurants to be materially different from the performance indicated or implied by such statements. Words such as “expect”, “anticipate”, “believe”, “intend”, “plan”, “hope”, "will" and variations of such words and similar expressions are intended to identify such forward-looking statements. Except as may be required by law, the Company expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. Factors that could cause actual performance to differ materially from the performance indicated by these forward-looking statements include, among others: the rapidly evolving COVID-19 pandemic and related containment measures, including the potential for further operational disruption from government mandates affecting restaurants; economic, public health and political conditions that impact consumer confidence and spending, including COVID-19; competitive pressures from within the restaurant industry; the level of success of our operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses, or other diseases; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy (including with regard to energy costs), particularly at the retail level; political environment (including acts of war and terrorism); and other factors from time to time set forth in the Company’s SEC reports and other filings, including but not limited to the discussion in Management’s Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 30, 2020, the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, this report on Form 10-Q and in the Company’s subsequent quarterly reports on Form 10-Q.
Current Trends
Domestic system-wide same-store sales 1 for the quarter ended June 30, 2021 decreased 1.2% compared to the equivalent fiscal period in 2019 and increased 117.0% compared to the equivalent fiscal period in 2020. Over 99% of Denny’s restaurants were operating with open dining rooms as of the end of the current quarter with an effective capacity of approximately 98%.
Total off-premise sales at domestic and franchised restaurants, inclusive of virtual brands, have remained strong at approximately 24% of average weekly sales in July 2021 compared to pre-pandemic levels in February 2020 of approximately 12%.
Sales at domestic and franchised restaurants in the quarter benefited from over 1,100 active locations with the Company’s first virtual brand, The Burger Den. The Company began a phased rollout of its second virtual brand, The Meltdown, in April 2021 and is expected to be substantially complete with the rollout during the third quarter at approximately half of its domestic locations. Transactions from these two virtual brands are highly incremental and leverage labor during underutilized dayparts with nearly 70% of transactions occurring during dinner and late night.
Nearly 40% of domestic company and franchised restaurants were operating 24/7 at the end of the second quarter with staffing challenges being the primary headwind preventing restaurants from opening at the late night daypart. To address the industry-wide staffing challenges, the Company conducted a hiring tour and engaged a third-party vendor to enhance its online recruiting allowing franchisees to post open positions on its career website with greater visibility to potential applicants.
18

In an effort to provide greater transparency due to the COVID-19 pandemic, Denny's is providing the following table that presents monthly same-store sales 1 results compared to the equivalent fiscal periods during 2019:
Domestic System-Wide Same-Store Sales 1 Compared to 2019 Fiscal Periods

| Domestic System-Wide Same-Store Sales 1
| Fiscal Year 2021*
| Jan | Feb | Mar | Apr | May | Jun | Jul*
System | (31%) | (25%) | (9%) | (2%) | (3%) | 1% | 3%
24/7 Units | (20%) | (16%) | 2% | 11% | 11% | 14% | 15%
Limited Hour Units | (38%) | (32%) | (16%) | (11%) | (12%) | (8%) | (7%)
| *July results are preliminary. |  |  |

| Domestic Average Units
| Fiscal Year 2021
| Jan | Feb | Mar | Apr | May | Jun | Jul *
System | 1,504 | 1,501 | 1,501 | 1,499 | 1,498 | 1,497 | 1,495
24/7 Units | 519 | 532 | 569 | 566 | 561 | 566 | 576
Limited Hour Units | 939 | 928 | 912 | 920 | 926 | 920 | 909
| *July results are preliminary. |  |  |

______________
(1) Domestic system-wide same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open during the comparable periods noted. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic system-wide same-store sales should be considered as a supplement to, not a substitute for, the Company's results as reported under GAAP.
19

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

| Quarter Ended |  | Two Quarters Ended
| June 30, 2021 |  | June 24, 2020 |  | June 30, 2021 |  | June 24, 2020
| (Dollars in thousands)
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Company restaurant sales | $ | 47,572 |  |  | 44.8 | % |  | $ | 15,128 |  |  | 37.7 | % |  | $ | 81,141 |  |  | 43.5 | % |  | $ | 57,419 |  |  | 42.0 | %
Franchise and license revenue | 58,593 |  |  | 55.2 | % |  | 25,033 |  |  | 62.3 | % |  | 105,600 |  |  | 56.5 | % |  | 79,437 |  |  | 58.0 | %
Total operating revenue | 106,165 |  |  | 100.0 | % |  | 40,161 |  |  | 100.0 | % |  | 186,741 |  |  | 100.0 | % |  | 136,856 |  |  | 100.0 | %
Costs of company restaurant sales, excluding depreciation and amortization (a): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product costs | 11,447 |  |  | 24.1 | % |  | 4,305 |  |  | 28.5 | % |  | 19,719 |  |  | 24.3 | % |  | 14,435 |  |  | 25.1 | %
Payroll and benefits | 16,970 |  |  | 35.7 | % |  | 8,039 |  |  | 53.1 | % |  | 29,935 |  |  | 36.9 | % |  | 25,145 |  |  | 43.8 | %
Occupancy | 2,844 |  |  | 6.0 | % |  | 2,728 |  |  | 18.0 | % |  | 5,694 |  |  | 7.0 | % |  | 5,891 |  |  | 10.3 | %
Other operating expenses | 6,552 |  |  | 13.8 | % |  | 4,534 |  |  | 30.0 | % |  | 12,629 |  |  | 15.6 | % |  | 10,253 |  |  | 17.9 | %
Total costs of company restaurant sales | 37,813 |  |  | 79.5 | % |  | 19,606 |  |  | 129.6 | % |  | 67,977 |  |  | 83.8 | % |  | 55,724 |  |  | 97.0 | %
Costs of franchise and license revenue, excluding depreciation and amortization (a) | 28,735 |  |  | 49.0 | % |  | 15,244 |  |  | 60.9 | % |  | 52,493 |  |  | 49.7 | % |  | 44,414 |  |  | 55.9 | %
General and administrative expenses | 17,548 |  |  | 16.5 | % |  | 13,153 |  |  | 32.8 | % |  | 34,495 |  |  | 18.5 | % |  | 20,895 |  |  | 15.3 | %
Depreciation and amortization | 3,897 |  |  | 3.7 | % |  | 4,058 |  |  | 10.1 | % |  | 7,558 |  |  | 4.0 | % |  | 8,204 |  |  | 6.0 | %
Operating (gains), losses and other charges, net | (113) |  |  | (0.1) | % |  | 1,627 |  |  | 4.1 | % |  | 419 |  |  | 0.2 | % |  | 3,100 |  |  | 2.3 | %
Total operating costs and expenses, net | 87,880 |  |  | 82.8 | % |  | 53,688 |  |  | 133.7 | % |  | 162,942 |  |  | 87.3 | % |  | 132,337 |  |  | 96.7 | %
Operating income (loss) | 18,285 |  |  | 17.2 | % |  | (13,527) |  |  | (33.7) | % |  | 23,799 |  |  | 12.7 | % |  | 4,519 |  |  | 3.3 | %
Interest expense, net | 4,066 |  |  | 3.8 | % |  | 4,947 |  |  | 12.3 | % |  | 8,343 |  |  | 4.5 | % |  | 8,898 |  |  | 6.5 | %
Other nonoperating expense (income), net | 16,251 |  |  | 15.3 | % |  | 9,565 |  |  | 23.8 | % |  | (13,797) |  |  | (7.4) | % |  | 12,328 |  |  | 9.0 | %
Income (loss) before income taxes | (2,032) |  |  | (1.9) | % |  | (28,039) |  |  | (69.8) | % |  | 29,253 |  |  | 15.7 | % |  | (16,707) |  |  | (12.2) | %
Provision for (benefit from) income taxes | (1,204) |  |  | (1.1) | % |  | (5,074) |  |  | (12.6) | % |  | 6,900 |  |  | 3.7 | % |  | (2,755) |  |  | (2.0) | %
Net income (loss) | $ | (828) |  |  | (0.8) | % |  | $ | (22,965) |  |  | (57.2) | % |  | $ | 22,353 |  |  | 12.0 | % |  | $ | (13,952) |  |  | (10.2) | %
Other Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Company average unit sales | $ | 732 |  |  |  |  | $ | 246 |  |  |  |  | $ | 1,257 |  |  |  |  | $ | 890 |  |  |
Franchise average unit sales | $ | 416 |  |  |  |  | $ | 183 |  |  |  |  | $ | 742 |  |  |  |  | $ | 589 |  |  |
Company equivalent units (b) | 65 |  |  |  |  | 62 |  |  |  |  | 65 |  |  |  |  | 64 |  |  |
Franchise equivalent units (b) | 1,582 |  |  |  |  | 1,622 |  |  |  |  | 1,583 |  |  |  |  | 1,627 |  |  |
Company same-store sales increase (decrease) vs. prior year (c)(e) | 172.1 | % |  |  |  | (64.9) | % |  |  |  | 46.8 | % |  |  |  | (35.9) | % |  |
Domestic franchise same-store sales increase (decrease) vs. prior year (c)(e) | 113.2 | % |  |  |  | (56.1) | % |  |  |  | 30.8 | % |  |  |  | (28.4) | % |  |
Company same-store sales increase (decrease) vs. 2019 (c)(d)(e) | 1.9 | % |  |  |  | N/A |  |  |  | (10.6) | % |  |  |  | N/A |  |
Domestic franchise same-store sales decrease vs. 2019 (c)(d)(e) | (1.5) | % |  |  |  | N/A |  |  |  | (10.2) | % |  |  |  | N/A |  |

20

(a)Costs of company restaurant sales percentages are as a percentage of company restaurant sales. Costs of franchise and license revenue percentages are as a percentage of franchise and license revenue. All other percentages are as a percentage of total operating revenue.
(b)Equivalent units are calculated as the weighted average number of units outstanding during a defined time period.
(c)Same-store sales include sales from company restaurants or non-consolidated franchised and licensed restaurants that were open during the comparable periods noted.
(d)In an effort to provide greater transparency due to the COVID-19 pandemic, we are providing additional same-store sales information for 2021 that includes sales from company restaurants or non-consolidated franchised and licensed restaurants that were open the same period in fiscal 2019.
(e)Prior year amounts have not been restated for 2021 comparable units.
21

Unit Activity

| Quarter Ended |  | Two Quarters Ended
| June 30, 2021 |  | June 24, 2020 |  | June 30, 2021 |  | June 24, 2020
Company restaurants, beginning of period | 65 |  |  | 67 |  |  | 65 |  |  | 68 |
Units opened | — |  |  | — |  |  | — |  |  | — |
Units closed | — |  |  | — |  |  | — |  |  | (1) |
End of period | 65 |  |  | 67 |  |  | 65 |  |  | 67 |
Franchised and licensed restaurants, beginning of period | 1,584 |  |  | 1,628 |  |  | 1,585 |  |  | 1,635 |
Units opened | 3 |  |  | 3 |  |  | 6 |  |  | 11 |
Units closed | (7) |  |  | (15) |  |  | (11) |  |  | (30) |
End of period | 1,580 |  |  | 1,616 |  |  | 1,580 |  |  | 1,616 |
Total restaurants, end of period | 1,645 |  |  | 1,683 |  |  | 1,645 |  |  | 1,683 |

Company Restaurant Operations
Company restaurant sales increased $32.4 million, or 214.5%, for the quarter ended June 30, 2021 and $23.7 million, or 41.3%, year-to-date compared to the prior year periods, respectively. The increases in company restaurant sales were primarily due to reduced dine-in restrictions and fewer temporary closures related to the COVID-19 pandemic in the current periods as compared to the prior year periods. Company same-store sales increased 172.1% for the current year quarter and 46.8% year-to-date as compared to the prior year periods.
Total costs of company restaurant sales as a percentage of company restaurant sales was 79.5% for the quarter ended June 30, 2021 and 83.8% year-to-date compared to 129.6% and 97.0%, respectively, for the prior year periods.
Product costs were 24.1% for the quarter ended June 30, 2021 and 24.3% year-to-date compared to 28.5% and 25.1%, respectively, for the prior year periods. The prior year included increases in paper product costs due to higher delivery and to-go orders as a percentage of sales related to the COVID-19 pandemic.
Payroll and benefits were 35.7% for the quarter ended June 30, 2021 and 36.9% year-to-date compared to 53.1% and 43.8%, respectively, in the prior year periods. For the current year quarter and year-to-date periods, management and staff payroll, including payroll taxes, decreased 19.4 percentage points and 6.6 percentage points, respectively, as a percentage of sales. The primary driver of these decreases was the leveraging effect of the increase in sales caused by higher sales as guests return to our restaurants due to the easing of COVID-19 restrictions. Also contributing to the decreases were lower staffing and deployment levels in the current year due to challenges in the labor market as compared to the prior year's retention of a significant portion of our management staff during a time that restaurants were closed or operating under government restrictions. Increases in unit level incentive compensation costs and workers' compensation costs partially offset the leveraging benefit of higher sales. For the current year quarter and year-to-date periods, incentive compensation costs increased 0.8 percentage points and 0.7 percentage points, respectively, as a result of the improvement in operating performance. For the current year quarter, workers' compensation costs increased 2.2 percentage points resulting from positive claims development in the prior year.
Occupancy costs were 6.0% for the quarter ended June 30, 2021 and 7.0% year-to-date compared to 18.0% and 10.3%, respectively, in the prior year periods. The decreases as a percentage of sales were primarily due to the leveraging effect of improved sales.
22

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

| Quarter Ended |  | Two Quarters Ended
| June 30, 2021 |  | June 24, 2020 |  | June 30, 2021 |  | June 24, 2020
| (Dollars in thousands)
Utilities | $ | 1,390 |  |  | 2.9 | % |  | $ | 1,098 |  |  | 7.3 | % |  | $ | 2,615 |  |  | 3.2 | % |  | $ | 2,534 |  |  | 4.4 | %
Repairs and maintenance | 635 |  |  | 1.3 | % |  | 428 |  |  | 2.8 | % |  | 1,168 |  |  | 1.4 | % |  | 1,217 |  |  | 2.1 | %
Marketing | 1,365 |  |  | 2.9 | % |  | 607 |  |  | 4.0 | % |  | 2,332 |  |  | 2.9 | % |  | 1,726 |  |  | 3.0 | %
Other direct costs | 3,162 |  |  | 6.6 | % |  | 2,401 |  |  | 15.9 | % |  | 6,514 |  |  | 8.0 | % |  | 4,776 |  |  | 8.3 | %
Other operating expenses | $ | 6,552 |  |  | 13.8 | % |  | $ | 4,534 |  |  | 30.0 | % |  | $ | 12,629 |  |  | 15.6 | % |  | $ | 10,253 |  |  | 17.9 | %

Other direct costs were lower as a percentage of sales due to the leveraging effect of higher sales.
Franchise Operations
Franchise and license revenue and costs of franchise and license revenue consisted of the following amounts and percentages of franchise and license revenue for the periods indicated:

| Quarter Ended |  | Two Quarters Ended
| June 30, 2021 |  | June 24, 2020 |  | June 30, 2021 |  | June 24, 2020
| (Dollars in thousands)
Royalties | $ | 27,117 |  |  | 46.3 | % |  | $ | 6,719 |  |  | 26.8 | % |  | $ | 47,961 |  |  | 45.4 | % |  | $ | 30,566 |  |  | 38.5 | %
Advertising revenue | 18,600 |  |  | 31.7 | % |  | 7,232 |  |  | 28.9 | % |  | 32,711 |  |  | 31.0 | % |  | 24,758 |  |  | 31.2 | %
Initial and other fees | 2,066 |  |  | 3.5 | % |  | 1,346 |  |  | 5.4 | % |  | 3,904 |  |  | 3.7 | % |  | 3,043 |  |  | 3.8 | %
Occupancy revenue | 10,810 |  |  | 18.4 | % |  | 9,736 |  |  | 38.9 | % |  | 21,024 |  |  | 19.9 | % |  | 21,070 |  |  | 26.5 | %
Franchise and license revenue | $ | 58,593 |  |  | 100.0 | % |  | $ | 25,033 |  |  | 100.0 | % |  | $ | 105,600 |  |  | 100.0 | % |  | $ | 79,437 |  |  | 100.0 | %
Advertising costs | $ | 18,600 |  |  | 31.7 | % |  | $ | 7,232 |  |  | 28.9 | % |  | $ | 32,711 |  |  | 31.0 | % |  | $ | 24,758 |  |  | 31.2 | %
Occupancy costs | 6,879 |  |  | 11.7 | % |  | 5,829 |  |  | 23.3 | % |  | 13,418 |  |  | 12.7 | % |  | 13,238 |  |  | 16.7 | %
Other direct costs | 3,256 |  |  | 5.6 | % |  | 2,183 |  |  | 8.7 | % |  | 6,364 |  |  | 6.0 | % |  | 6,418 |  |  | 8.1 | %
Costs of franchise and license revenue | $ | 28,735 |  |  | 49.0 | % |  | $ | 15,244 |  |  | 60.9 | % |  | $ | 52,493 |  |  | 49.7 | % |  | $ | 44,414 |  |  | 55.9 | %

Franchise and license revenue increased $33.6 million, or 134.1%, for the quarter ended June 30, 2021 and $26.2 million, or 32.9%, year-to-date compared to the prior year periods. Royalties increased $20.4 million, or 303.6%, and $17.4 million, or 56.9%, for the current quarter and year-to-date periods, respectively, compared to the prior year periods. Advertising revenue increased $11.4 million, or 157.2%, for the current quarter and $8.0 million, or 32.1%, year-to-date compared to the prior year periods. The increases in royalty and advertising revenue primarily resulted from 113.2% and 30.8% increases in domestic same-store sales for the respective periods. Additionally, the prior year periods included abatements of $3.0 million and $4.9 million of royalties in the quarter-to-date and year-to-date periods, respectively, and $1.2 million of advertising fees in the year-to-date period to help our franchisees weather the impact of the COVID-19 pandemic. Partially offsetting these increases for both periods were decreases of 40 and 44 equivalent units for the quarterly and year-to-date periods, respectively.
Initial and other fees increased $0.7 million, or 53.5%, for the quarter ended June 30, 2021 and $0.9 million, or 28.3%, year-to-date compared to the prior year periods. Occupancy revenue increased $1.1 million, or 11.0%, for the current quarter and decreased less than $0.1 million, or 0.2%, year-to-date compared to the prior year periods. The increase in occupancy revenue for the current quarter primarily resulted from higher percentage rents as a result of sales increases due to reduced dine-in restrictions and temporary closures related to the COVID-19 pandemic.
Costs of franchise and license revenue increased $13.5 million, or 88.5%, for the quarter ended June 30, 2021 and $8.1 million, or 18.2%, year-to-date compared to the prior year periods. The increases were primarily related to the increases in advertising costs year-over-year, which corresponded to the related advertising revenue increases noted above. Occupancy costs increased $1.1 million, or 18.0%, for the current quarter and $0.2 million, or 1.4%, year-to-date compared to prior year periods. The increase in occupancy costs for the current quarter primarily resulted from higher percentage rent expense as a result of sales
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increases. Other direct franchise costs increased $1.1 million, or 49.1%, for the current quarter and decreased $0.1 million, or 0.8%, year-to-date compared to the prior year periods. Other direct franchise costs for the current quarter and year-to-date periods included increases in franchise administrative costs, partially offset by bad debt allowance reversals of $0.4 million and $0.7 million for the quarterly and year-to-date periods, respectively. Due to the increase in revenue, costs of franchise and license revenue decreased to 49.0% and 49.7% for the quarter and two quarters ended June 30, 2021 from 60.9% and 55.9% for the respective prior year periods.
Other Operating Costs and Expenses
Other operating costs and expenses such as general and administrative expenses and depreciation and amortization expense relate to both company and franchise operations.
General and administrative expenses consisted of the following:

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

Corporate administrative expenses increased $0.6 million for the quarter ended June 30, 2021 and decreased $0.3 million year-to-date. The increase for the current quarter was primarily due to prior year temporary cost reductions related to the COVID-19 pandemic, partially offset by retention credits of $0.5 million in the current year quarter. Share-based compensation increased $1.9 million for the current quarter and $6.9 million year-to-date. Incentive compensation increased $3.0 million for the current quarter and $5.1 million year-to-date. The increases in share-based compensation and incentive compensation primarily resulted from adjustments recorded in the prior year as a result of not meeting performance measures for the respective compensation plans due to the impacts of the COVID-19 pandemic. Changes in deferred compensation valuation adjustments have offsetting gains or losses on the underlying nonqualified deferred plan investments included as a component of other non-operating expense (income), net, for the corresponding periods.
Depreciation and amortization consisted of the following:

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

The decreases in depreciation and amortization expense during the quarter ended June 30, 2021 and year-to-date periods were primarily due to certain intangible assets becoming fully amortized in the prior year.
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Operating (gains), losses and other charges, net consisted of the following:

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

Gains on sales of assets and other, net for the two quarters ended June 30, 2021 were primarily related to the sale of one parcel of real estate. Gains on sales of assets and other, net during the two quarters ended June 24, 2020 were primarily related to the sale of two parcels of real estate.
Restructuring charges and exit costs consisted of the following:

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

Restructuring and exit costs decreased by $1.7 million for the current quarter and $0.6 million year-to-date compared to the prior year periods. The decrease for the current quarter and year-to-date period was primarily due to the Company permanently separating with approximately 50 support center staff in the prior year period. Restructuring and exit costs for the two quarters ended June 30, 2021 include relocation costs associated with moving certain employees to our support center in the Dallas, Texas area.
Impairment charges of $2.2 million during the two quarters ended June 24, 2020 were the result of an assessment of the recoverability of assets resulting from the impact of the COVID-19 pandemic.
Operating income was $18.3 million for the current quarter and $23.8 million year-to-date compared to a loss of $13.5 million and income of $4.5 million, respectively, for the prior year periods.
Interest expense, net consisted of the following:

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

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Total cash interest expense, net decreased by $1.0 million for both the quarter ended June 30, 2021 and year-to-date periods as compared to the respective prior year periods. Combined interest on credit facility borrowings and interest rate swaps decreased by $1.2 million for both the current quarter and year-to-date periods. These decreases primarily resulted from decreased average borrowings in the current quarter and year-to-date periods and lower average interest rates on the credit facility for the year-to-date period. Partially offsetting these decreases to total interest expense net, for both the quarter and year-to-date periods were $0.2 million and $0.3 million increases in the amortization of deferred financing costs resulting from prior year credit facility amendments.
Other nonoperating expense (income), net was expense of $16.3 million for the quarter and income of $13.8 million year-to-date, compared to expense of $9.6 million and $12.3 million, respectively, for the prior year periods. Other nonoperating expense (income) for the current quarter primarily consisted of $17.2 million of losses related to interest rate swap valuation adjustments, partially offset by $0.8 million of gains on deferred compensation plan investments. The year-to-date period primarily consisted of $12.7 million of gains on interest rate swap valuation adjustments in addition to $1.4 million of gains on deferred compensation plan investments. Prior year other nonoperating expense for the quarter and year-to-date periods primarily consisted of recognized losses on interest rate swaps of $11.5 million resulting from the discontinuance of hedge accounting treatment on a portion of our interest rate swaps.
Provision for (benefit from) income taxes was a benefit of $1.2 million for the quarter ended June 30, 2021 and a provision of $6.9 million year-to-date, compared to benefits of $5.1 million and $2.8 million for the prior year periods. The effective tax rate was 59.3% for the quarter and 23.6% year-to-date, compared to 18.1% and 16.5%, respectively, for the prior year periods. The 2021 quarterly and year-to-date rates included the impact of excess tax benefits relating to share-based compensation of 13.4% and (1.2%), respectively. The 2020 quarterly and year-to-date rates included a benefit from the reclassification of cash flow derivatives from accumulated other comprehensive loss, net of 7.0% and 11.7%, respectively.
Net income (loss) was a net loss of $0.8 million for the quarter ended June 30, 2021 and net income of $22.4 million year-to-date compared to net loss of $23.0 million and $14.0 million, respectively, for the prior year periods.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources are cash generated from operations and borrowings under our credit facility (as described below). Principal uses of cash are operating expenses, capital expenditures and, prior to the second quarter of 2020, the repurchase of shares of our common stock.
The following table presents a summary of our sources and uses of cash and cash equivalents for the periods indicated:

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

Net cash flows provided by operating activities were $43.4 million for the two quarters ended June 30, 2021 compared to net cash flows used in operating activities of $8.0 million for the two quarters ended June 24, 2020. The increase in cash flows provided by operating activities was primarily due to the improvement of operating results in 2021 and the timing of prior year accrual payments. We believe that our estimated cash flows from operations for 2021, combined with our capacity for additional borrowings under our credit facility and cash on hand, will enable us to meet our anticipated cash requirements and fund capital expenditures over the next 12 months.
Net cash flows used in investing activities were $1.0 million for the two quarters ended June 30, 2021. These cash flows primarily consisted of capital expenditures of $3.1 million, partially offset by proceeds from sales of restaurants, real estate and other assets of $1.6 million, collections on notes receivable of $0.4 million, and proceeds from sales of investments of $0.2 million. Net cash flows used in investing activities were $0.3 million for the two quarters ended June 24, 2020. These cash flows primarily consisted of capital expenditures of $4.5 million and investment purchases of $1.4 million, which were mostly offset by proceeds from sales of restaurants and real estate of $2.2 million and proceeds from the sale of investments of $2.9 million.
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Our principal capital requirements have been largely associated with the following:

| Two Quarters Ended
| June 30, 2021 |  | June 24, 2020
| (In thousands)
Facilities | $ | 1,626 |  |  | $ | 1,966 |
New construction | — |  |  | 114 |
Remodeling | 356 |  |  | 965 |
Information technology | 842 |  |  | 1,138 |
Other | 284 |  |  | 293 |
Capital expenditures | $ | 3,108 |  |  | $ | 4,476 |

Cash flows used in financing activities were $35.4 million for the two quarters ended June 30, 2021, which included net long-term debt repayments of $31.0 million, in addition to net bank overdraft payments of $3.1 million and payments of tax withholdings on share-based compensation of $1.4 million. Cash flows provided by financing activities were $26.0 million for the two quarters ended June 24, 2020, which included net long-term debt borrowings of $66.4 million, partially offset by cash payments for stock repurchases of $36.0 million.
Our working capital deficit was $39.2 million at June 30, 2021 compared to $28.5 million at December 30, 2020. The increase in working capital deficit was primarily related to the increase in current liabilities as of June 30, 2021. We are able to operate with a substantial working capital deficit because (1) restaurant operations and most food service operations are conducted primarily on a cash (and cash equivalent) basis with a low level of accounts receivable, (2) rapid turnover allows for a limited investment in inventories, and (3) accounts payable for food, beverages and supplies usually becomes due after the receipt of cash from the related sales.
Credit Facility
Denny's and certain of its subsidiaries have a credit facility, as amended, consisting of a five-year $375 million senior secured revolver (with a $30 million letter of credit sublimit) which was reduced to $350 million on July 1, 2021. As of June 30, 2021, we had outstanding revolver loans of $180.0 million and outstanding letters of credit under the credit facility of $15.7 million. These balances resulted in availability of $179.3 million as of June 30, 2021 under the credit facility prior to considering the liquidity covenant in our credit facility. Factoring in the liquidity covenant, our availability was $120.2 million as of June 30, 2021. The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit facility is guaranteed by Denny's and its material subsidiaries and is secured by assets of Denny's and its subsidiaries, including the stock of its subsidiaries (other than our insurance captive subsidiary).
As of June 30, 2021, borrowings under the credit facility bore interest at a rate of LIBOR plus 3.00% and the commitment fee, paid on the unused portion of the credit facility, was set to 0.40%. The maturity date for the credit facility is October 26, 2022.
The Company is prohibited from paying dividends and making stock repurchases and other general investments. Limitations on capital expenditures of $12 million are in effect for the period of May 13, 2020 through September 29, 2021.
The consolidated fixed charge coverage ratio covenant was a minimum of 1.00x for the quarter ended June 30, 2021, adjusting to 1.25x for the quarter ending September 29, 2021, and 1.50x for the quarter ending December 29, 2021 and thereafter. The consolidated leverage ratio covenant was a maximum of 5.25x as of June 30, 2021, stepping down to 4.75x as of September 29, 2021, and 4.00x as of December 29, 2021 and thereafter. In addition, the Company is subject to a monthly minimum liquidity covenant, defined as the sum of unrestricted cash and revolver availability, of $70 million, until the date of delivery of the financial statements for the fiscal quarter ending September 29, 2021. We were in compliance with all financial covenants as of June 30, 2021.
Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 3.11% and 3.15% as of June 30, 2021 and December 30, 2020, respectively. Taking into consideration our interest rate swaps that are designated as cash flow hedges, the weighted-average interest rate of outstanding revolver loans was 5.31% and 5.01% as of June 30, 2021 and December 30, 2020, respectively.
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Implementation of New Accounting Standards
Information regarding the implementation of new accounting standards is incorporated by reference from Note 2 to our unaudited Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We have exposure to interest rate risk related to certain instruments entered into for other than trading purposes. Specifically, as of June 30, 2021, borrowings under our credit facility bore interest at variable rates based on LIBOR plus 3.00% per annum.
We have receive-variable, pay-fixed interest rate swaps to hedge the forecasted cash flows of our floating rate debt.
A summary of our interest rate swaps as of June 30, 2021 is as follows:

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

(1) The notional amounts of the swaps entered into on February 15, 2018 increase annually until they reach the maximum notional amount of $425.0 million on September 28, 2029.
As of June 30, 2021, the total notional amount of our interest rate swaps was in excess of 100% of our floating rate debt. Based on the levels of borrowings under the credit facility at June 30, 2021, if interest rates changed by 100 basis points, our annual cash flow and income before taxes would not change. However, depending on market considerations, fluctuations in the fair values of our interest rate swaps could be significant. With the exception of these changes in the fair value of our interest rate swaps and in the levels of borrowings under our credit facility, there have been no material changes in our quantitative and qualitative market risks since the prior reporting period. For additional information related to our interest rate swaps, including changes in the fair value, refer to Notes 6, 7 and 13 to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
Item 4. Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management conducted an evaluation (under the supervision and with the participation of our Chief Executive Officer, John C. Miller, and our Executive Vice President and Chief Financial Officer, Robert P. Verostek) as of the end of the period covered by this Quarterly Report on Form 10-Q, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, Messrs. Miller and Verostek each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to our management, including Messrs. Miller and Verostek, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during our fiscal quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is incorporated by reference from Note 14 to our unaudited Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this report.
Item 1A. Risk Factors
There have been no material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020.
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Item 6. Exhibits
The following are included as exhibits to this report:

Exhibit No. |  | Description
10.1 |  | Summary of Non-Employee Director Compensation as of May 19, 2021.
10.2 |  | Denny's Corporation 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 99.1 to the Denny's Corporation Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 19, 2021).
31.1 |  | Certification of John C. Miller, Chief Executive Officer of Denny's Corporation, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 |  | Certification of Robert P. Verostek, Executive Vice President and Chief Financial Officer of Denny's Corporation, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 |  | Certification of John C. Miller, Chief Executive Officer of Denny's Corporation, and Robert P. Verostek, Executive Vice President and Chief Financial Officer of Denny's Corporation, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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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: | August 3, 2021 | By: | /s/ Robert P. Verostek |
|  |  | Robert P. Verostek |
|  |  | Executive Vice President and Chief Financial Officer |
Date: | August 3, 2021 | By: | /s/ Jay C. Gilmore |
|  |  | Jay C. Gilmore |
|  |  | Senior Vice President, Chief Accounting Officer and Corporate Controller |

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