UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2018

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________

DENNYSLOGO2017A06.JPG

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   ¨   No   þ

 As of October 24, 2018 , 62,587,274 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.




TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 

2



PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements
 
Denny’s Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
 
September 26, 2018
 
December 27, 2017
 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,871

 
$
4,983

Investments
1,709

 

Receivables, net
17,186

 
21,384

Inventories
3,051

 
3,134

Assets held for sale
193

 

Prepaid and other current assets
10,495

 
11,788

Total current assets
34,505

 
41,289

Property, net of accumulated depreciation of $248,062 and $243,325, respectively
143,459

 
139,856

Goodwill
39,843

 
38,269

Intangible assets, net
59,907

 
57,109

Deferred financing costs, net
2,487

 
2,942

Deferred income taxes
15,595

 
16,945

Other noncurrent assets
32,962

 
27,372

Total assets
$
328,758

 
$
323,782

 
 
 
 
Liabilities
 

 
 

Current liabilities:
 

 
 

Current maturities of capital lease obligations
$
3,282

 
$
3,168

Accounts payable
20,327

 
32,487

Other current liabilities
53,911

 
59,246

Total current liabilities
77,520

 
94,901

Long-term liabilities:
 

 
 

Long-term debt, less current maturities
278,000

 
259,000

Capital lease obligations, less current maturities
27,305

 
27,054

Liability for insurance claims, less current portion
12,025

 
12,236

Other noncurrent liabilities
43,888

 
27,951

Total long-term liabilities
361,218

 
326,241

Total liabilities
438,738

 
421,142

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Shareholders' equity (deficit)
 

 
 

Common stock $0.01 par value; shares authorized - 135,000; September 27, 2018: 108,493 shares issued and 62,905 shares outstanding; December 27, 2017: 107,740 shares issued and 64,589 shares outstanding
$
1,085

 
$
1,077

Paid-in capital
597,344

 
594,166

Deficit
(317,917
)
 
(334,661
)
Accumulated other comprehensive income (loss), net of tax
2,541

 
(2,316
)
Shareholders’ equity before treasury stock
283,053

 
258,266

Treasury stock, at cost, 45,588 and 43,151 shares, respectively
(393,033
)
 
(355,626
)
Total shareholders' deficit
(109,980
)
 
(97,360
)
Total liabilities and shareholders' deficit
$
328,758

 
$
323,782


See accompanying notes

3



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

 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands, except per share amounts)
Revenue:
 
 
 
 
 
 
 
Company restaurant sales
$
103,609

 
$
97,915

 
$
307,543

 
$
290,049

Franchise and license revenue
54,414

 
34,469

 
163,087

 
103,621

Total operating revenue
158,023

 
132,384

 
470,630

 
393,670

Costs of company restaurant sales:
 
 
 
 
 
 
 
Product costs
25,303

 
24,896

 
75,292

 
72,798

Payroll and benefits
41,041

 
37,332

 
123,332

 
113,221

Occupancy
6,083

 
5,054

 
17,165

 
15,291

Other operating expenses
15,419

 
14,040

 
45,490

 
39,544

Total costs of company restaurant sales
87,846

 
81,322

 
261,279

 
240,854

Costs of franchise and license revenue
28,174

 
9,493

 
85,779

 
29,483

General and administrative expenses
15,981

 
16,446

 
48,138

 
50,536

Depreciation and amortization
6,760

 
5,958

 
19,965

 
17,493

Operating (gains), losses and other charges, net
793

 
630

 
1,615

 
3,459

Total operating costs and expenses, net
139,554

 
113,849

 
416,776

 
341,825

Operating income
18,469

 
18,535

 
53,854

 
51,845

Interest expense, net
5,314

 
4,067

 
15,324

 
11,348

Other nonoperating income, net
(460
)
 
(286
)
 
(877
)
 
(1,053
)
Net income before income taxes
13,615

 
14,754

 
39,407

 
41,550

Provision for income taxes
2,810

 
5,429

 
7,217

 
15,103

Net income
$
10,805

 
$
9,325

 
$
32,190

 
$
26,447

 
 
 
 
 
 
 
 
Basic net income per share
$
0.17

 
$
0.14

 
$
0.50

 
$
0.38

Diluted net income per share
$
0.16

 
$
0.13

 
$
0.49

 
$
0.37

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
63,246

 
66,873

 
63,774

 
69,095

Diluted weighted average shares outstanding
65,522

 
69,210

 
66,122

 
71,377

 
See accompanying notes

4


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

 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Net income
$
10,805

 
$
9,325

 
$
32,190

 
$
26,447

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Minimum pension liability adjustment, net of tax of $7, $9, $20 and $27, respectively
21

 
14

 
64

 
42

Recognition of unrealized gain (loss) on hedge transactions, net of tax of $1,583, $133, $1,673 and $(1,249), respectively
4,537

 
209

 
4,793

 
(1,958
)
Other comprehensive income (loss)
4,558

 
223

 
4,857

 
(1,916
)
Total comprehensive income
$
15,363

 
$
9,548

 
$
37,047

 
$
24,531


See accompanying notes

5



Denny’s Corporation and Subsidiaries
Condensed Consolidated Statement of Shareholders’ Deficit
(Unaudited)

 
Common Stock
 
Treasury Stock
 
Paid-in Capital
 
Deficit
 
Accumulated
Other
Comprehensive
Income
(Loss), Net
 
Total
Shareholders’
Deficit
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
(In thousands)
Balance, December 27, 2017
107,740

 
$
1,077

 
(43,151
)
 
$
(355,626
)
 
$
594,166

 
$
(334,661
)
 
$
(2,316
)
 
$
(97,360
)
Cumulative effect adjustment

 

 

 

 

 
(15,446
)
 

 
(15,446
)
Net income

 

 

 

 

 
32,190

 

 
32,190

Other comprehensive income

 

 

 

 

 

 
4,857

 
4,857

Share-based compensation on equity classified awards, net

 

 

 

 
2,128

 

 

 
2,128

Purchase of treasury stock

 

 
(2,437
)
 
(37,407
)
 

 

 

 
(37,407
)
Issuance of common stock for share-based compensation
447

 
5

 

 

 
(5
)
 

 

 

Exercise of common stock options
306

 
3

 

 

 
1,055

 

 

 
1,058

Balance, September 26, 2018
108,493

 
$
1,085

 
(45,588
)
 
$
(393,033
)
 
$
597,344

 
$
(317,917
)
 
$
2,541

 
$
(109,980
)
 
See accompanying notes

6



Denny’s Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
32,190

 
$
26,447

Adjustments to reconcile net income to cash flows provided by operating activities:
 
 
 
Depreciation and amortization
19,965

 
17,493

Operating (gains), losses and other charges, net
1,615

 
3,459

Amortization of deferred financing costs
455

 
446

(Gain) loss on early extinguishments of debt and leases
(159
)
 
68

Deferred income tax expense
5,044

 
9,936

Share-based compensation
3,661

 
6,546

Changes in assets and liabilities:
 
 
 
Decrease (increase) in assets:
 
 
 
Receivables
3,582

 
3,279

Inventories
83

 
(55
)
Other current assets
1,292

 
834

Other assets
(565
)
 
(5,068
)
Increase (decrease) in liabilities:
 
 
 
Accounts payable
(11,948
)
 
(5,121
)
Accrued salaries and vacations
(858
)
 
(9,094
)
Accrued taxes
1,974

 
1,474

Other accrued liabilities
(7,733
)
 
(4,834
)
Other noncurrent liabilities
(2,339
)
 
(2,285
)
Net cash flows provided by operating activities
46,259

 
43,525

Cash flows from investing activities:
 
 
 
Capital expenditures
(17,294
)
 
(13,558
)
Acquisition of restaurants and real estate
(10,416
)
 
(10,043
)
Proceeds from disposition of property
969

 
2,318

Investment purchases
(1,709
)
 

Collections on notes receivable
2,478

 
3,773

Issuance of notes receivable
(2,525
)
 
(2,278
)
Net cash flows used in investing activities
(28,497
)
 
(19,788
)
Cash flows from financing activities:
 
 
 
Revolver borrowings
91,000

 
105,900

Revolver payments
(72,000
)
 
(62,600
)
Long-term debt payments
(2,429
)
 
(2,467
)
Proceeds from exercise of stock options
1,058

 
173

Tax withholding on share-based payments
(1,714
)
 

Purchase of treasury stock
(37,108
)
 
(65,951
)
Net bank overdrafts
319

 
279

Net cash flows used in financing activities
(20,874
)
 
(24,666
)
Decrease in cash and cash equivalents
(3,112
)
 
(929
)
Cash and cash equivalents at beginning of period
4,983

 
2,592

Cash and cash equivalents at end of period
$
1,871

 
$
1,663

 
See accompanying notes

7



Denny’s Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1.     Introduction and Basis of Presentation

Denny’s Corporation, or Denny’s or the Company, is one of America’s largest full-service restaurant chains based on number of restaurants. At September 26, 2018 , the Denny's brand consisted of 1,715 restaurants, 1,534 of which were franchised/licensed restaurants and 181 of which were company operated.

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

These interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 27, 2017 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the fiscal year ended December 27, 2017 . The results of operations for the interim periods presented are not necessarily indicative of the results for the entire fiscal year ending December 26, 2018 .

Note 2.     Summary of Significant Accounting Policies
 
Newly Adopted Accounting Standards

Effective December 28, 2017, the first day of fiscal 2018, we adopted Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customers (Topic 606)” and all subsequent ASUs that modified Topic 606. The new guidance clarifies the principles used to recognize revenue for all entities and requires a company to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. We elected to apply the modified retrospective method of adoption to those contracts which were not completed as of December 28, 2017. In doing so, we applied the practical expedient to aggregate all contract modifications that occurred before December 28, 2017 in determining the satisfied and unsatisfied performance obligations, the transaction price and the allocation of the transaction price to the satisfied and unsatisfied performance obligations. Results for reporting periods beginning after December 28, 2017 are presented under Topic 606. Prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605 “Revenue Recognition.” Our transition to Topic 606 represents a change in accounting principle. See Note 3 for further information about our transition to Topic 606 and the newly required disclosures.

Effective December 28, 2017, we adopted ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. The new guidance requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The adoption of this guidance did not have any impact on our Consolidated Financial Statements.

Effective December 28, 2017, we adopted ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. The new guidance requires an entity to report the service cost component in the same line on the income statement as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside the subtotal of income from operations, if one is presented. If a separate line item is not used, the line item used in the income statement must be disclosed. The adoption of this guidance did not have any impact on our Consolidated Financial Statements.

8




Effective December 28, 2017, we early adopted ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) and requires certain disclosures about stranded tax effects. Due to the immateriality of the stranded tax effects resulting from the implementation of the Tax Act, we have elected not to reclassify these amounts from accumulated other comprehensive income to retained earnings. Therefore the adoption of this guidance did not have any impact on our Consolidated Financial Statements.

Effective December 28, 2017, we early adopted ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The new update better aligns an entity’s risk management activities and financial reporting for hedging relationships, simplifies the hedge accounting requirements, and improves the disclosures of hedging arrangements. The amended presentation and disclosure guidance has been applied on a prospective basis. The adoption of this guidance did not have any impact on our Consolidated Financial Statements.

Effective September 26, 2018, we early adopted ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosure requirements on fair value measurements. The adoption of this guidance did not have any impact on our disclosures.

Effective September 26, 2018, we early adopted ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. The adoption of this guidance will have an immaterial impact on our annual disclosures.

Effective September 26, 2018, we early adopted ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance was adopted on a prospective basis and did not have a material impact on our Consolidated Financial Statements.

Additional new accounting guidance became effective for us as of December 28, 2017 that we reviewed and concluded was either not applicable to our operations or had no material effect on the our Consolidated Financial Statements and related disclosures.

Accounting Standards to be Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842)”, which provides guidance for accounting for leases. The new guidance requires companies to recognize a right-of-use asset and a lease liability for all operating and capital (financing) leases with lease terms greater than 12 months. The FASB has subsequently amended this guidance by issuing ASU 2018-10 and ASU 2018-11 in July 2018 to provide clarification and further guidance around areas identified as potential implementation issues and to allow an alternative transition method. The alternative transition method allows entities to initially apply the new leases standard at the adoption date by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than retroactive restatement of all periods presented. All of the standards are effective for annual and interim periods beginning after December 15, 2018 (our fiscal 2019) with early adoption permitted. The guidance will be adopted using the alternative transition method.

The adoption of ASU 2016-02 will have a material impact on our Consolidated Balance Sheets resulting from the recognition of operating lease right-of-use assets and liabilities. Although the new guidance is also expected to impact the measurement and presentation of certain expenses and cash flows related to leasing arrangements, we do not believe there will be a material impact to our Consolidated Statements of Income or Consolidated Statements of Cash Flows. We do not expect the recognition of the additional operating lease liabilities will impact any credit facility debt covenants as these liabilities are not considered to be debt.

We have decided to elect the package of practical expedients that do not require us to reassess whether existing contracts are or contain leases, lease classification or initial direct costs. In addition, we have decided not to elect the hindsight practical expedient which would allow us to reassess lease terms and impairment of the right-to-use assets. We have completed the implementation of a new lease management system in preparation for adoption and continue to assess the impact that the new guidance will have on our financial statements and related disclosures.

9




In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The new guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform financial statement users of credit loss estimates. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 (our fiscal 2020) with early adoption permitted for annual and interim periods beginning after December 15, 2018 (our fiscal 2019). We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

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

Note 3.     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 channels and types of goods or services.

 
Quarter Ended
Three Quarters Ended
 
September 26, 2018
September 27, 2017 (1)
September 26, 2018
September 27, 2017 (1)
 
(Dollars in thousands)
Company restaurant sales
$
103,609

 
$
97,915

 
$
307,543

 
$
290,049

Franchise and license revenue:
 
 
 
 
 
 
 
Royalties
25,518

 
25,174

 
75,875

 
75,056

Advertising revenue
19,546

 

 
58,386

 

Initial and other fees
1,415

 
507

 
4,642

 
1,579

Occupancy revenue 
7,935

 
8,788

 
24,184

 
26,986

Franchise and license revenue 
54,414

 
34,469

 
163,087

 
103,621

Total operating revenue
$
158,023

 
$
132,384

 
$
470,630

 
$
393,670


(1)
As disclosed in Note 2, prior period amounts have not been adjusted under the modified retrospective method of adoption of Topic 606.

Company Restaurant Revenue

Company restaurant revenue is recognized at the point in time when food and beverage products are sold at company restaurants. We present company restaurant sales net of sales-related taxes collected from customers and remitted to governmental taxing authorities. The adoption of Topic 606 did not impact the recognition of company restaurant sales.

Franchise Revenue

Franchise and license revenues consist primarily of royalties, advertising revenue, initial and other fees and occupancy revenue.

Under franchise agreements we provide franchisees with a license of our brand’s symbolic intellectual property, administration of advertising programs (including local co-operatives), and other ongoing support functions. These services are highly interrelated so we do not consider them to be individually distinct performance obligations, and therefore account for them under Topic 606 as a single performance obligation. Revenue from franchise agreements is recognized evenly over the term of the agreement with the exception of sales-based royalties.


10



Royalty and advertising revenues represent sales-based royalties that are recognized in the period in which the sales occur. Sales-based royalties are variable consideration related to our performance obligation to our franchisees to maintain the intellectual property being licensed. Under our franchise agreements, franchisee advertising contributions must be spent on marketing and related activities. The adoption of Topic 606 did not impact the recognition of royalties. Upon adoption of Topic 606, advertising revenues and expenditures are recorded on a gross basis within the Consolidated Statements of Income. Under the previous guidance of Topic 605, we recorded franchise advertising expense net of contributions from franchisees to our advertising programs, including local co-operatives. While this change materially impacts the gross amount of reported franchise and license revenue and costs of franchise and license revenue, the impact is generally an offsetting increase to both revenue and expense with little, if any, impact on operating income and net income.

Initial and other fees consist of initial, successor and assignment franchise fees (“initial franchise fees”). Initial franchise fees are billed and received upon the signing of the franchise agreement. Under Topic 606, recognition of these fees is deferred until the commencement date of the agreement and occurs over time based on the term of the underlying franchise agreement. In the event a franchise agreement is terminated, any remaining deferred fees are recognized in the period of termination. Under the previous guidance, initial franchise fees were recognized upon the opening of a franchise restaurant.
Initial and other fees also includes revenue that are distinct from the franchise agreement and are separate performance obligations. Training and other franchise services fees are billed and recognized at a point in time as services are rendered. Similar to advertising revenue, upon adoption of Topic 606, other franchise services fees are recorded on a gross basis within the Consolidated Statements of Income, whereas, under previous guidance, they were netted against the related expenses.

Occupancy revenue results from leasing or subleasing restaurants to franchisees and is recognized over the term of the lease agreement.
With the exception of initial and other franchise fees, revenues are typically billed and collected on a weekly basis.
Gift Card Breakage
Under previous guidance, we recorded gift card breakage when the likelihood of redemption was remote. Breakage was recorded as a benefit to our advertising fund or reduction to other operating expenses, depending on where the gift cards were sold. Upon adoption of Topic 606, gift card breakage is recognized proportionally as redemptions occur. Our gift card breakage primarily relates to cards sold by third parties. Breakage revenue related to third party sales is recorded as advertising revenue (included as a component of franchise and license revenue).
Financial Statement Impact of Adoption
The following tables summarize the impact of adopting Topic 606 on our financial statement line items as of September 26, 2018 and for the quarter and three quarters ended September 26, 2018 .

 
Quarter ended September 26, 2018
Consolidated Balance Sheet
As Reported
 
Adjustments
 
Amounts without adoption of Topic 606
 
(In thousands)
Prepaid and other current assets
$
10,495

 
$
509

 
$
11,004

Deferred income taxes
15,595

 
(5,040
)
 
10,555

Other current liabilities
53,911

 
(360
)
 
53,551

Other noncurrent liabilities
43,888

 
(18,618
)
 
25,270

Deficit
(317,917
)
 
14,447

 
(303,470
)


11



 
Quarter ended September 26, 2018
 
Three quarters ended September 26, 2018
Consolidated Statement of Income
As Reported
 
Adjustments
 
Amounts without adoption of Topic 606
 
As Reported
 
Adjustments
 
Amounts without adoption of Topic 606
 
(In thousands, except per share amounts)
Franchise and license revenue
$
54,414

 
$
(20,397
)
 
$
34,017

 
$
163,087

 
$
(61,653
)
 
$
101,434

Costs of franchise and license revenue
28,174

 
(20,007
)
 
8,167

 
85,779

 
(60,306
)
 
25,473

Provision for income taxes
2,810

 
(101
)
 
2,709

 
7,217

 
(348
)
 
6,869

Net income
10,805

 
(289
)
 
10,516

 
32,190

 
(999
)
 
31,191

Basic net income per share
$
0.17

 
$

 
$
0.17

 
$
0.50

 
$
(0.01
)
 
$
0.49

Diluted net income per share
$
0.16

 
$

 
$
0.16

 
$
0.49

 
$
(0.02
)
 
$
0.47


 
Quarter ended September 26, 2018
 
Three quarters ended September 26, 2018
Consolidated Statement of Comprehensive Income
As Reported
 
Adjustments
 
Amounts without adoption of Topic 606
 
As Reported
 
Adjustments
 
Amounts without adoption of Topic 606
 
(In thousands)
Net income
$
10,805

 
$
(289
)
 
$
10,516

 
$
32,190

 
$
(999
)
 
$
31,191

Total comprehensive income
15,363

 
(289
)
 
15,074

 
37,047

 
(999
)
 
36,048


 
Three quarters ended September 26, 2018
Consolidated Statement of Cash Flow
As Reported
 
Adjustments
 
Amounts without adoption of Topic 606
 
(In thousands)
Net income
$
32,190

 
$
(999
)
 
$
31,191

Deferred income tax expense
5,044

 
(348
)
 
4,696

Changes in assets and liabilities:
 
 
 
 
 
Other current assets
1,292

 
(509
)
 
783

Other accrued liabilities
(7,733
)
 
621

 
(7,112
)
Other noncurrent liabilities
(2,339
)
 
1,235

 
(1,104
)
Net cash flows provided by operating activities
46,259

 

 
46,259


The following significant changes impacted our financial statement line items as of September 26, 2018 and for the quarter and three quarters ended September 26, 2018 :
Upon adoption of Topic 606, we recorded a cumulative effect adjustment related to previously recognized initial franchise fees resulting in a $21.0 million increase to deferred franchise revenue, a $15.6 million increase to opening deficit and a $5.4 million increase to deferred tax assets. The deferred franchise revenue resulting from the cumulative effect adjustment will be amortized over the remaining lives of the individual franchise agreements. Also upon adoption, we recorded a cumulative effect adjustment to recognize breakage in proportion to redemptions that occurred prior to December 28, 2017 resulting in a decrease of $0.6 million to gift card liability (a component of other current liabilities), a $0.5 million increase to accrued advertising (a component of other current liabilities) and a $0.1 million decrease to opening deficit.

12



We recognized franchise and license revenue and costs of franchise and license revenue of $19.5 million for the quarter and $58.4 million year-to-date resulting from the recording of advertising revenues and expenditures on a gross basis under Topic 606 versus recording these amounts on a net basis under Topic 605.

We recognized additional franchise and license revenue of $0.4 million for the quarter and $1.4 million year-to-date under Topic 606 than we would have recognized under Topic 605, resulting from the timing of recognition of initial franchise fees.

We recognized franchise and license revenue and costs of franchise and license revenue of $0.5 million for the quarter and $1.9 million year-to-date resulting from the recording of other franchise services fees on a gross basis under Topic 606 versus recording these amount on a net basis under Topic 605.

Contract Balances

Contract balances related to contracts with customers consists of receivables, deferred franchise revenue and deferred gift card revenue. See Note 4 for details on our receivables.
Deferred franchise revenue consists primarily of the unamortized portion of initial franchise fees that are currently being amortized into revenue and amounts related to development agreements and unopened restaurants that will begin amortizing into revenue when the related restaurants are opened. Deferred franchise revenue represents our remaining performance obligations to our franchisees, excluding amounts of variable consideration related to sales-based royalties and advertising. The components of the change in deferred franchise revenue are as follows:

 
(In thousands)
Balance, December 27, 2017
$
1,643

Cumulative effect adjustment recognized upon adoption of Topic 606
20,976

Fees received from franchisees
795

Revenue recognized (1)
(2,628
)
Balance, September 26, 2018
20,786

Less current portion included in other current liabilities
2,168

Deferred franchise revenue included in other noncurrent liabilities
$
18,618


(1) Of this amount $2.6 million was included in either the deferred franchise revenue balance as of December 27, 2017 or the cumulative effect adjustment.

As of September 26, 2018 , the deferred franchise revenue expected to be recognized in the future is as follows:

 
(In thousands)
Remainder of 2018
$
546

2019
2,114

2020
1,967

2021
1,783

2022
1,675

Thereafter
12,701

Deferred franchise revenue
$
20,786


Deferred gift card liabilities consist of the unredeemed portion of gift cards sold in company restaurants and at third party locations. We recognize revenue when a gift card is redeemed in one of our company restaurants. Gift card breakage is recognized proportionally as redemptions occur. The balance of deferred gift card liabilities represents our remaining performance obligations to our customers. The balance of deferred gift card liabilities as of September 26, 2018 and December 27, 2017 was $4.1 million and $6.5 million , respectively. During the three quarters ended September 26, 2018 , we recognized revenue of $1.4 million from gift card redemptions at company restaurants.


13



Note 4.     Receivables
 
Receivables were comprised of the following:
 
 
September 26, 2018
 
December 27, 2017
 
(In thousands)
Receivables, net:
 
 
 
Trade accounts receivable from franchisees
$
9,267

 
$
10,688

Financing receivables from franchisees
3,559

 
5,084

Vendor receivables
2,039

 
3,256

Credit card receivables
1,030

 
1,870

Other
1,566

 
762

Allowance for doubtful accounts
(275
)
 
(276
)
Total receivables, net
$
17,186

 
$
21,384

 
 
 
 
Other noncurrent assets:
 
 
 
Financing receivables from franchisees
$
1,110

 
$
427


During the three quarters ended September 26, 2018 , we recorded an allowance for doubtful accounts of $0.2 million of financing receivables from a franchisee.

Note 5.    Goodwill and Other Intangible Assets

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

 
(In thousands)
Balance, December 27, 2017
$
38,269

Additions related to acquisitions
1,574

Balance, September 26, 2018
$
39,843


Other intangible assets were comprised of the following:
 
 
September 26, 2018
 
December 27, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
 
(In thousands)
Intangible assets with indefinite lives:
 
 
 
 
 
 
 
Trade names
$
44,087

 
$

 
$
44,080

 
$

Liquor licenses
166

 

 
166

 

Intangible assets with definite lives:
 
 
 
 
 
 
 
Reacquired franchise rights
20,121

 
4,467

 
15,252

 
2,389

Intangible assets, net
$
64,374

 
$
4,467

 
$
59,498

 
$
2,389

 
During the three quarters ended September 26, 2018 , we acquired six franchised restaurants for $8.1 million , of which $5.4 million was allocated to reacquired franchise rights, $1.1 million to property and $1.6 million to goodwill. In addition, we recorded $2.4 million of capital leases in connection with the acquired franchised restaurants. We account for the acquisition of franchised restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on Level 3 fair value estimates.


14



Note 6.     Other Current Liabilities
 
Other current liabilities consisted of the following:

 
September 26, 2018
 
December 27, 2017
 
(In thousands)
Accrued payroll
$
20,214

 
$
20,998

Accrued insurance, primarily current portion of liability for insurance claims
7,067

 
6,922

Accrued taxes
9,358

 
7,384

Accrued advertising
4,738

 
8,417

Gift cards
4,129

 
6,480

Other
8,405

 
9,045

Other current liabilities
$
53,911

 
$
59,246


Note 7.     Operating (Gains), Losses and Other Charges, Net

Operating (gains), losses and other charges, net   are comprised of the following:
 
 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Software implementation costs
$

 
$
1,001

 
$

 
$
4,669

Gains on sales of assets and other, net
(695
)
 
(411
)
 
(759
)
 
(1,646
)
Restructuring charges and exit costs
48

 
40

 
816

 
436

Impairment charges
1,440

 

 
1,558

 

Operating (gains), losses and other charges, net
$
793

 
$
630

 
$
1,615

 
$
3,459

 
Software implementation costs of $4.7 million for the three quarters ended September 27, 2017 were the result of our investment in a new cloud-based Enterprise Resource Planning system. Gains on sales of assets and other, net for the quarter and three quarters ended September 26, 2018 primarily related to insurance settlements on fire-damaged restaurants. Gains on sales of assets and other, net of $1.6 million for the three quarters ended September 27, 2017 primarily related to real estate sold to franchisees.

Restructuring charges and exit costs were comprised of the following: 
 
 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Exit costs
$
48

 
$
40

 
$
347

 
$
366

Severance and other restructuring charges

 

 
469

 
70

Total restructuring charges and exit costs
$
48

 
$
40

 
$
816

 
$
436



15



The components of the change in accrued exit cost liabilities are as follows:
 
 
(In thousands)
Balance, December 27, 2017
$
1,180

Exit costs (1)
347

Payments, net of sublease receipts
(440
)
Interest accretion
57

Balance, September 26, 2018
1,144

Less current portion included in other current liabilities
489

Long-term portion included in other noncurrent liabilities
$
655


(1)
Included as a component of operating (gains), losses and other charges, net.

As of September 26, 2018 and December 27, 2017 , we had accrued severance and other restructuring charges of $0.1 million and less than $0.1 million , respectively. The balance as of September 26, 2018 is expected to be paid during the next 12 months.

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

Note 8.     Fair Value of Financial Instruments

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

 
 
Total
 
Quoted Prices in Active Markets for Identical Assets/Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
(In thousands )
Fair value measurements as of September 26, 2018:
 
 
 
 
 
 
 
Deferred compensation plan investments  (1)
$
12,808

 
$
12,808

 
$

 
$

Interest rate swaps, net (2)
4,280

 

 
4,280

 

Investments (3)
1,709

 

 
1,709

 

Total
$
18,797

 
$
12,808

 
$
5,989

 
$

 
 
 
 
 
 
 
 
Fair value measurements as of December 27, 2017:
 
 
 
 
 
 
 
Deferred compensation plan investments  (1)
$
12,663

 
$
12,663

 
$

 
$

Interest rate swaps, net (2)
(2,187
)
 

 
(2,187
)
 

Total
$
10,476

 
$
12,663

 
$
(2,187
)
 
$


(1)
The fair values of our deferred compensation plan investments are based on the closing market prices of the elected investments.
(2)
The fair values of our interest rate swaps are based upon Level 2 inputs, which include valuation models as reported by our counterparties. The key inputs for the valuation models are quoted market prices, interest rates and forward yield curves. See Note 9 for details on the interest rate swaps.
(3)
The fair value of investments is valued using a readily determinable net asset value per share based on the fair value of the underlying securities. There are no significant redemption restrictions associated with these investments.


16



Note 9.     Long-Term Debt

Denny's and certain of its subsidiaries have a credit facility consisting of a five-year $400 million senior secured revolver (with a $30 million letter of credit sublimit). The credit facility includes an accordion feature that would allow us to increase the size of the revolver to $450 million . As of September 26, 2018 , we had outstanding revolver loans of $278.0 million and outstanding letters of credit under the senior secured revolver of $19.8 million . These balances resulted in availability of $102.2 million under the credit facility. Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 4.12% and 3.42% as of September 26, 2018 and December 27, 2017 , respectively. Taking into consideration our interest rate swaps, the weighted-average interest rate of outstanding revolver loans was 4.35% and 3.32% as of September 26, 2018 and December 27, 2017 , respectively.

A commitment fee, which is based on our consolidated leverage ratio, is paid on the unused portion of the credit facility and was 0.30% as of September 26, 2018 . Borrowings under the credit facility bear a tiered interest rate, also based on our leverage ratio, and was set at LIBOR plus 200 basis points as of September 26, 2018 . The maturity date for the credit facility is October 26, 2022 .

The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit facility is guaranteed by Denny's and its material subsidiaries and is secured by assets of Denny's and its subsidiaries, including the stock of its subsidiaries (other than our insurance captive subsidiary). It includes negative covenants that are usual for facilities and transactions of this type. The credit facility also includes certain financial covenants with respect to a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. We were in compliance with all financial covenants as of September 26, 2018 .

Interest Rate Hedges
We have interest rate swaps to hedge a portion of the forecasted cash flows of our floating rate debt. We designated the interest rate swaps as cash flow hedges of our exposure to variability in future cash flows attributable to payments of LIBOR due on forecasted notional amounts.

Under the interest rate swaps, we pay a fixed rate on the notional amount in addition to the current interest rate as determined by our consolidated leverage ratio in effect at the time. A summary of our interest rate swaps as of September 26, 2018 is as follows:

Trade Date
 
Effective Date
 
Maturity Date
 
Notional Amount
 
Fixed Rate
 
 
 
 
 
 
(In thousands)
 
 
March 20, 2015
 
March 29, 2018
 
March 31, 2025
 
$
120,000

 
2.44
%
October 1, 2015
 
March 29, 2018
 
March 31, 2026
 
50,000

 
2.46
%
February 15, 2018
 
March 31, 2020
 
December 31, 2033
 
80,000

(1)  
3.19
%

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

As of September 26, 2018 , the fair value of the interest rate swaps was a net asset of $4.3 million , which is comprised of assets of $5.2 million recorded as a component of other noncurrent assets and liabilities of $0.9 million recorded as a component of other noncurrent liabilities in our Condensed Consolidated Balance Sheets. See Note 14 for the amounts recorded in accumulated other comprehensive loss related to the interest rate swaps.


17



Note 10.     Share-Based Compensation

Total share-based compensation cost included as a component of net income was as follows:

 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Performance share awards
$
902

 
$
2,246

 
$
2,922

 
$
6,090

Restricted stock units for board members
198

 
247

 
739

 
456

Total share-based compensation
$
1,100

 
$
2,493

 
$
3,661

 
$
6,546

 
Performance Share Units
 
During the three quarters ended September 26, 2018 , we granted certain employees approximately 0.2 million performance share units that vest based on the total shareholder return (“TSR”) of our common stock compared to the TSRs of a group of peer companies and 0.3 million performance share units that vest based on our Adjusted EPS growth rate versus plan, as defined under the terms of the award. As the TSR based performance share units contain a market condition, a Monte Carlo valuation was used to determine the grant date fair value of $18.17 per share. The performance share units based on the Adjusted EPS growth rate have a grant date fair value of $15.93 per share, the market value of our common stock on the date of grant. The awards granted to our named executive officers also contain a performance condition based on the attainment of an operating measure for the fiscal year ended December 26, 2018 . The performance period for these performance share units is the three year fiscal period beginning December 28, 2017 and ending December 30, 2020. They will vest and be earned (from 0% to 150% of the target award for each such increment) at the end of the performance period.

During the three quarters ended September 26, 2018 , we issued 0.2 million shares of common stock related to vested performance share units. In addition 0.3 million shares of common stock were deferred and 0.1 million shares of common stock were withheld in lieu of taxes related to vested performance share units.
 
As of September 26, 2018 , we had approximately $9.3 million of unrecognized compensation cost related to all unvested performance share awards outstanding, which have a weighted average remaining contractual term of 1.2 years .
 
Restricted Stock Units for Board Members

During the three quarters ended September 26, 2018 , we granted less than 0.1 million deferred stock units (which are equity classified) with a weighted average grant date fair value of $15.50 per unit to non-employee members of our Board of Directors. The deferred 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) or upon termination as a member of our Board of Directors. During the three quarters ended September 26, 2018 , 0.2 million deferred stock units were converted into shares of common stock. As of September 26, 2018 , we had approximately $0.6 million of unrecognized compensation cost related to all unvested restricted stock unit awards outstanding, which have a weighted average remaining contractual term of 0.6 years .
 
Note 11.     Income Taxes

The effective income tax rate was 20.6% for the quarter ended September 26, 2018 and 18.3% for the three quarters ended September 26, 2018 compared to 36.8% and 36.3% , respectively, for the prior year periods. The 2018 periods were impacted by the Tax Act. In addition, the 2018 quarterly and year-to-date rates benefited from a discrete item relating to share-based compensation of 0.4% and 3.1% , respectively. The Tax Act reduces the U.S. statutory tax rate from 35% to 21% for years after 2017. We revalued our deferred taxes during fiscal 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are realized. The implementation of the Tax Act resulted in certain stranded tax effects in accumulated other comprehensive income. Due to the immateriality of the stranded tax effects, we have elected not to reclassify these amounts from accumulated other comprehensive income to retained earnings.
 

18



Note 12.     Net Income Per Share
 
The amounts used for the basic and diluted net income per share calculations are summarized below:
 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands, except for per share amounts)
Net income
$
10,805

 
$
9,325

 
$
32,190

 
$
26,447

 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
63,246

 
66,873

 
63,774

 
69,095

Effect of dilutive share-based compensation awards
2,276

 
2,337

 
2,348

 
2,282

Weighted average shares outstanding - diluted
65,522

 
69,210

 
66,122

 
71,377

 
 
 
 
 
 
 
 
Basic net income per share
$
0.17

 
$
0.14

 
$
0.50

 
$
0.38

Diluted net income per share
$
0.16

 
$
0.13

 
$
0.49

 
$
0.37

 
 
 
 
 
 
 
 
Anti-dilutive share-based compensation awards

 
606

 
471

 
606

    
Note 13.     Supplemental Cash Flow Information

 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Income taxes paid, net
$
2,347

 
$
5,039

Interest paid
$
14,349

 
$
10,547

 
 
 
 
Noncash investing and financing activities:
 
 
 
Property acquisition payable
$

 
$
500

Insurance proceeds receivable
$
19

 
$

Issuance of common stock, pursuant to share-based compensation plans
$
4,671

 
$
4,961

Execution of capital leases
$
2,850

 
$
4,959

Treasury stock payable
$
419

 
$
741

Notes received in connection with disposition of property
$

 
$
1,750

 
Note 14.     Shareholders' Equity

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

During the three quarters ended September 26, 2018 , we repurchased 2.4 million shares of our common stock for approximately $37.4 million . This brings the total amount repurchased under the current repurchase program to 2.7 million shares of our common stock for approximately $41.1 million , leaving approximately $158.9 million that can be used to repurchase our common stock under this program as of September 26, 2018 . Repurchased shares are included as treasury stock in our Condensed Consolidated Balance Sheets and our Condensed Consolidated Statement of Shareholders' Equity.

19




Accumulated Other Comprehensive Income (Loss)

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

 
Defined Benefit Plans
 
Derivatives
 
Accumulated Other Comprehensive Income (Loss)
 
(In thousands)
Balance as of December 27, 2017
$
(982
)
 
$
(1,334
)
 
$
(2,316
)
Amortization of net loss (1)
84

 

 
84

Net change in fair value of derivatives

 
6,225

 
6,225

Reclassification of derivatives to interest expense, net (2)

 
241

 
241

Income tax (expense) benefit related to items of other comprehensive loss
(20
)
 
(1,673
)
 
(1,693
)
Balance as of September 26, 2018
$
(918
)
 
$
3,459

 
$
2,541


(1)
Before-tax amount related to our defined benefit plans that was reclassified from accumulated other comprehensive loss and included as a component of pension expense within general and administrative expenses in our Condensed Consolidated Statements of Income during the three quarters ended September 26, 2018 .
(2)
Amounts reclassified from accumulated other comprehensive loss into income represent payments either received from or made to the counterparty for the effective portions of the interest rate swaps. These amounts are included as a component of interest expense, net in our Condensed Consolidated Statements of Income. We expect to make payments to the counterparty and reclassify approximately $0.6 million from accumulated other comprehensive loss related to our interest rate swaps during the next twelve months. See Note 9 for additional details.

Note 15.     Commitments and Contingencies

We have guarantees related to certain franchisee loans. Payments under these guarantees would result from the inability of a franchisee to fund required payments when due. Through September 26, 2018 , no events had occurred that caused us to make payments under these guarantees. There were $2.8 million and $5.1 million of loans outstanding under these programs as of September 26, 2018 and December 27, 2017 , respectively. As of September 26, 2018 , the maximum amount payable under the loan guarantees was $0.9 million . As a result of these guarantees, we have recorded liabilities of less than $0.1 million as of both September 26, 2018 and December 27, 2017 , which are included as a component of other noncurrent liabilities in our Condensed Consolidated Balance Sheets and other nonoperating expense in our Condensed Consolidated Statements of Income.

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

Note 16.     Subsequent Events

We performed an evaluation of subsequent events and determined that no events required disclosure.


20



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

Forward-Looking Statements

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

Factors Impacting Comparability

Impact of New Revenue Recognition Standard

Effective December 28, 2017, the first day of fiscal 2018, the Company adopted Accounting Standards Update 2014-09, “Revenue from Contracts with Customers (Topic 606)” and all subsequent ASUs that modified Topic 606 on a modified retrospective basis. Results for reporting periods beginning after December 28, 2017 are presented under Topic 606. Prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605 “Revenue Recognition.”

The most significant effects of the new guidance on the comparability of our results of operations between 2018 and 2017 include the following:

Under Topic 606, advertising revenues and expenditures are recorded on a gross basis within the Consolidated Statements of Income. Under the previous guidance of Topic 605, we recorded franchise advertising expense net of contributions from franchisees to our advertising programs, including local co-operatives. While this change materially impacts the gross amount of reported franchise and license revenue and costs of franchise and license revenue, the impact is generally an offsetting increase to both revenue and expense with little, if any, impact on operating income and net income. Similarly, upon adoption, other franchise services fees are recorded on a gross basis within the Consolidated Statements of Income, whereas, under previous guidance, they were netted against the related expenses.

Under Topic 606, recognition of initial franchise fees is deferred until the commencement date of the agreement and occurs over time based on the term of the underlying franchise agreement. In the event a franchise agreement is terminated, any remaining deferred fees are recognized in the period of termination. Under the previous guidance, initial franchise fees were recognized upon the opening of a franchise restaurant. The effect of the required deferral of initial franchise fees received in a given year is mitigated by the recognition of revenue from fees received in prior periods.

Under previous guidance, we recorded gift card breakage when the likelihood of redemption was remote. Breakage was recorded as a benefit to our advertising fund or reduction to other operating expenses, depending on where the gift cards were sold. Under Topic 606, gift card breakage is recognized proportionally as redemptions occur. Our gift card breakage primarily relates to cards sold by third parties. Breakage revenue related to third party sales is recorded as advertising revenue (included as a component of franchise and license revenue) with an offsetting amount recorded as advertising expense (included as a component of costs of franchise and license revenue).

See Note 2 and Note 3 for information on the implementation of Topic 606 and its impact on our Consolidated Financial Statements.


21



Statements of Income
 
The following table contains information derived from our Condensed Consolidated Statements of Income expressed as a percentage of total operating revenues, except as noted below. Percentages may not add due to rounding.
 
 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(Dollars in thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant sales
$
103,609

 
65.6
 %
 
$
97,915

 
74.0
 %
 
$
307,543

 
65.3
 %
 
$
290,049

 
73.7
 %
Franchise and license revenue
54,414

 
34.4
 %
 
34,469

 
26.0
 %
 
163,087

 
34.7
 %
 
103,621

 
26.3
 %
Total operating revenue
158,023

 
100.0
 %
 
132,384

 
100.0
 %
 
470,630

 
100.0
 %
 
393,670

 
100.0
 %
Costs of company restaurant sales (a):
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
Product costs
25,303

 
24.4
 %
 
24,896

 
25.4
 %
 
75,292

 
24.5
 %
 
72,798

 
25.1
 %
Payroll and benefits
41,041

 
39.6
 %
 
37,332

 
38.1
 %
 
123,332

 
40.1
 %
 
113,221

 
39.0
 %
Occupancy
6,083

 
5.9
 %
 
5,054

 
5.2
 %
 
17,165

 
5.6
 %
 
15,291

 
5.3
 %
Other operating expenses
15,419

 
14.9
 %
 
14,040

 
14.3
 %
 
45,490

 
14.8
 %
 
39,544

 
13.6
 %
Total costs of company restaurant sales
87,846

 
84.8
 %
 
81,322

 
83.1
 %
 
261,279

 
85.0
 %
 
240,854

 
83.0
 %
Costs of franchise and license revenue   (a)
28,174

 
51.8
 %
 
9,493

 
27.5
 %
 
85,779

 
52.6
 %
 
29,483

 
28.5
 %
General and administrative expenses
15,981

 
10.1
 %
 
16,446

 
12.4
 %
 
48,138

 
10.2
 %
 
50,536

 
12.8
 %
Depreciation and amortization
6,760

 
4.3
 %
 
5,958

 
4.5
 %
 
19,965

 
4.2
 %
 
17,493

 
4.4
 %
Operating (gains), losses and other charges, net
793

 
0.5
 %
 
630

 
0.5
 %
 
1,615

 
0.3
 %
 
3,459

 
0.9
 %
Total operating costs and expenses, net
139,554

 
88.3
 %
 
113,849

 
86.0
 %
 
416,776

 
88.6
 %
 
341,825

 
86.8
 %
Operating income
18,469

 
11.7
 %
 
18,535

 
14.0
 %
 
53,854

 
11.4
 %
 
51,845

 
13.2
 %
Interest expense, net
5,314

 
3.4
 %
 
4,067

 
3.1
 %
 
15,324

 
3.3
 %
 
11,348

 
2.9
 %
Other nonoperating income, net
(460
)
 
(0.3
)%
 
(286
)
 
(0.2
)%
 
(877
)
 
(0.2
)%
 
(1,053
)
 
(0.3
)%
Net income before income taxes
13,615

 
8.6
 %
 
14,754

 
11.1
 %
 
39,407

 
8.4
 %
 
41,550

 
10.6
 %
Provision for income taxes
2,810

 
1.8
 %
 
5,429

 
4.1
 %
 
7,217

 
1.5
 %
 
15,103

 
3.8
 %
Net income
$
10,805

 
6.8
 %
 
$
9,325

 
7.0
 %
 
$
32,190

 
6.8
 %
 
$
26,447

 
6.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Data:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Company average unit sales
$
582

 
 

 
$
577

 
 

 
$
1,716

 
 

 
$
1,706

 
 

Franchise average unit sales
$
409

 
 

 
$
403

 
 

 
$
1,207

 
 

 
$
1,188

 
 

Company equivalent units (b)
178

 
 

 
170

 
 

 
179

 
 

 
170

 
 

Franchise equivalent units (b)
1,536

 
 

 
1,550

 
 

 
1,541

 
 

 
1,557

 
 

Company same-store sales increase (c)(d)
2.1
%
 
 

 
0.6
%
 
 

 
1.7
%
 
 

 
0.6
%
 
 

Domestic franchise same-store sales increase (c)(d)
0.8
%
 
 

 
0.6
%
 
 

 
0.4
%
 
 

 
0.7
%
 
 

            
(a)
Costs of company restaurant sales percentages are as a percentage of company restaurant sales. Costs of franchise and license revenue percentages are as a percentage of franchise and license revenue. All other percentages are as a percentage of total operating revenue.
(b)
Equivalent units are calculated as the weighted average number of units outstanding during a defined time period.
(c)
Same-store sales include sales from company restaurants or non-consolidated franchised and licensed restaurants that were open the same period in the prior year.
(d)
Prior year amounts have not been restated for 2018 comparable units.


22



Unit Activity
 
 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
Company restaurants, beginning of period
180

 
172

 
178

 
169

Units opened
1

 
1

 
1

 
2

Units acquired from franchisees

 
1

 
6

 
7

Units sold to franchisees

 

 

 
(4
)
Units closed

 

 
(4
)
 

End of period
181

 
174

 
181

 
174

 
 
 
 
 
 
 
 
Franchised and licensed restaurants, beginning of period
1,540

 
1,552

 
1,557

 
1,564

Units opened 
6

 
8

 
24

 
23

Units purchased from Company

 

 

 
4

Units acquired by Company

 
(1
)
 
(6
)
 
(7
)
Units closed
(12
)
 
(8
)
 
(41
)
 
(33
)
End of period
1,534

 
1,551

 
1,534

 
1,551

Total restaurants, end of period
1,715

 
1,725

 
1,715

 
1,725


Company Restaurant Operations
 
During the quarter ended September 26, 2018 , company restaurant sales increased $5.7 million , or 5.8% , primarily resulting from an eight equivalent unit increase in company restaurants as compared to the prior year period and a 2.1% increase in company same-store sales. During the three quarters ended September 26, 2018 , company restaurant sales increased $17.5 million , or 6.0% , primarily resulting from a nine equivalent unit increase in company restaurants as compared to the prior year period and a 1.7% increase in company same-store sales.
 
Total costs of company restaurant sales as a percentage of company restaurant sales increased to 84.8% for the quarter and 85.0% year-to-date from 83.1% and 83.0% , respectively, in the prior year periods.

Product costs were 24.4% for the quarter and 24.5% year-to-date compared to 25.4% and 25.1% , respectively, for the prior year periods. The decrease for the quarter was primarily due to leverage gained from increased pricing and lower commodity costs. The decrease year-to-date was primarily due to leverage gained from increased pricing.

Payroll and benefits were 39.6% for the quarter and 40.1% year-to-date compared to 38.1% and 39.0% , respectively, in the prior year periods. The increase for the quarter was primarily due to a 0.6 percentage point increase in workers' compensation costs and a 0.7 percentage point increase in labor costs partially resulting from minimum wage increases. The quarter ended September 26, 2018 included $0.7 million in favorable workers' compensation experience, as compared to $1.3 million of favorable workers' compensation experience in the prior year period. The increase year-to-date was primarily due to a 0.9 percentage point increase in labor costs resulting from minimum wage increases and a 0.3 percentage point increase in workers' compensation costs. The three quarters ended September 26, 2018 included $0.6 million in favorable workers' compensation experience, as compared to $1.6 million of favorable workers' compensation experience in the prior year period.

Occupancy costs were 5.9% for the quarter and 5.6% year-to-date compared to 5.2% and 5.3% , respectively, for the prior year periods. The increases for the quarter and year-to-date periods were primarily related to increases in general liability insurance costs, as the current year periods included negative claims development of $0.4 million and $0.3 million, respectively, and the prior year periods included favorable claims development of $0.2 million and $0.5 million, respectively.


23



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

 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(Dollars in thousands)
Utilities
$
3,926

 
3.8
%
 
$
3,767

 
3.8
%
 
$
10,690

 
3.5
%
 
$
9,873

 
3.4
%
Repairs and maintenance
1,870

 
1.8
%
 
1,642

 
1.7
%
 
5,647

 
1.8
%
 
4,972

 
1.7
%
Marketing
3,791

 
3.7
%
 
3,740

 
3.8
%
 
11,267

 
3.7
%
 
10,982

 
3.8
%
Other direct costs
5,832

 
5.6
%
 
4,891

 
5.0
%
 
17,886

 
5.8
%
 
13,717

 
4.7
%
Other operating expenses
$
15,419

 
14.9
%
 
$
14,040

 
14.3
%
 
$
45,490

 
14.8
%
 
$
39,544

 
13.6
%

The increase in other direct costs was primarily related to increased delivery sales resulting in higher third party delivery fees of $0.7 million for the quarter and $2.2 million year-to-date.

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 for the periods indicated:
 
 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(Dollars in thousands)
Royalties
$
25,518

 
46.9
%
 
$
25,174

 
73.0
%
 
$
75,875

 
46.5
%
 
$
75,056

 
72.4
%
Advertising revenue
19,546

 
35.9
%
 

 
%
 
58,386

 
35.8
%
 

 
%
Initial and other fees
1,415

 
2.6
%
 
507

 
1.5
%
 
4,642

 
2.8
%
 
1,579

 
1.5
%
Occupancy revenue 
7,935

 
14.6
%
 
8,788

 
25.5
%
 
24,184

 
14.8
%
 
26,986

 
26.0
%
Franchise and license revenue 
$
54,414

 
100.0
%
 
$
34,469

 
100.0
%
 
$
163,087

 
100.0
%
 
$
103,621

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Advertising costs
$
19,546

 
35.9
%
 
$
364

 
1.1
%
 
$
58,386

 
35.8
%
 
$
1,477

 
1.4
%
Occupancy costs 
$
5,585

 
10.3
%
 
$
6,343

 
18.4
%
 
$
17,059

 
10.5
%
 
$
19,420

 
18.7
%
Other direct costs 
3,043

 
5.6
%
 
2,786

 
8.1
%
 
10,334

 
6.3
%
 
8,586

 
8.3
%
Costs of franchise and license revenue 
$
28,174

 
51.8
%
 
$
9,493

 
27.5
%
 
$
85,779

 
52.6
%
 
$
29,483

 
28.5
%

Royalties increase d $0.3 million , or 1.4% , for the quarter and $0.8 million , or 1.1% , for the three quarters ended September 26, 2018 . The increases primarily resulted from higher average royalty rates and increases in domestic same-store sales, partially offset by equivalent unit decreases in franchised and licensed restaurants. Domestic same-store sales increase d 0.8% and 0.4% and equivalent units decrease d by 14 and 16 for the quarter and three quarters ended September 26, 2018, respectively.

The increases in initial and other fees and advertising revenue primarily resulted from the implementation of Topic 606 related to revenue recognition. We recognized additional franchise and license revenue of $0.4 million for the quarter and $1.4 million year-to-date, resulting from the timing of recognition of initial franchise fees under the new guidance. In addition, we recognized other franchise fees of $0.5 million for the quarter and $1.9 million year-to-date resulting from the recording of other franchise services fees on a gross basis under the new guidance versus recording these amounts on a net basis as previously presented. Advertising revenue and costs are also now required to be presented on a gross basis, instead of a net basis as previously presented. The decrease in occupancy revenue of $0.9 million , or 9.7% , for the quarter and $2.8 million , or 10.4% , year-to-date was primarily the result of scheduled lease expirations.


24



Costs of franchise and license revenue increase d $18.7 million , or 196.8% , for the quarter and $56.3 million , or 190.9% , year-to-date. These increases were primarily related to the increase in advertising costs related to the implementation of Topic 606, as advertising revenue is no longer netted with advertising expense. Occupancy costs decrease d $0.8 million , or 12.0% , for the quarter and $2.4 million , or 12.2% , year-to-date primarily resulting from scheduled lease expirations. The increase in other direct costs primarily related to the implementation of Topic 606, as certain other franchise expenses are no longer netted with the related fees received from franchisees. As a result, costs of franchise and license revenue as a percentage of franchise and license revenue increase d to 51.8% for the quarter from 27.5% for the prior year quarter and 52.6% year-to-date from 28.5% for the prior year period.

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 were comprised of the following:

 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Share-based compensation
$
1,100

 
$
2,493

 
$
3,661

 
$
6,546

Other general and administrative expenses
14,881

 
13,953

 
44,477

 
43,990

Total general and administrative expenses
$
15,981

 
$
16,446

 
$
48,138

 
$
50,536


Share-based compensation decrease d $1.4 million for the quarter and $2.9 million year-to-date primarily resulting from decreases in the expected performance of certain share-based compensation awards. Other general and administrative expenses increase d by $0.9 million for the quarter and $0.5 million year-to-date. The increases for the quarter and year-to-date periods primarily resulted from increases in investments in personnel.
 
Depreciation and amortization was comprised of the following:

 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Depreciation of property and equipment
$
4,717

 
$
4,261

 
$
13,788

 
$
12,711

Amortization of capital lease assets
1,003

 
1,021

 
3,092

 
3,011

Amortization of intangible and other assets
1,040

 
676

 
3,085

 
1,771

Total depreciation and amortization expense
$
6,760

 
$
5,958

 
$
19,965

 
$
17,493


The increases in depreciation of property and equipment and amortization of intangible and other assets primarily relate to acquisitions of franchised restaurants during the current and prior year.
 

25



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

 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Software implementation costs
$

 
$
1,001

 
$

 
$
4,669

Gains on sales of assets and other, net
(695
)
 
(411
)
 
(759
)
 
(1,646
)
Restructuring charges and exit costs
48

 
40

 
816

 
436

Impairment charges
1,440

 

 
1,558

 

Operating (gains), losses and other charges, net
$
793

 
$
630

 
$
1,615

 
$
3,459


Software implementation costs of $4.7 million for the three quarters ended September 27, 2017 were the result of our investment in a new cloud-based Enterprise Resource Planning system. Gains on sales of assets and other, net for the quarter and three quarters ended September 26, 2018 primarily related to insurance settlements on fire-damaged restaurants. Gains on sales of assets and other, net of $1.6 million for the three quarters ended September 27, 2017 primarily related to real estate sold to franchisees.

Restructuring charges and exit costs were comprised of the following:
 
 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Exit costs
$
48

 
$
40

 
$
347

 
$
366

Severance and other restructuring charges

 

 
469

 
70

Total restructuring and exit costs
$
48

 
$
40

 
$
816

 
$
436


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

Operating income was $18.5 million for the quarter and $53.9 million year-to-date compared to $18.5 million and $51.8 million , respectively, for the prior year periods.


26



Interest expense, net was comprised of the following:
 
 
Quarter Ended
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Interest on credit facilities
$
3,045

 
$
2,078

 
$
8,656

 
$
5,333

Interest on interest rate swaps
155

 
(30
)
 
241

 
116

Interest on capital lease liabilities
1,542

 
1,470

 
4,716

 
4,286

Letters of credit and other fees
322

 
303

 
980

 
886

Interest income
(47
)
 
(21
)
 
(125
)
 
(85
)
Total cash interest
5,017

 
3,800

 
14,468

 
10,536

Amortization of deferred financing costs
152

 
149

 
455

 
446

Interest accretion on other liabilities
145

 
118

 
401

 
366

Total interest expense, net
$
5,314

 
$
4,067

 
$
15,324

 
$
11,348


Interest expense, net increased by $1.2 million for the quarter and $4.0 million year-to-date primarily due to increases in the balance of our credit facility and related interest rates.

Other nonoperating income, net was $0.5 million for the quarter and $0.9 million year-to-date compared to $0.3 million and $1.1 million , respectively, for the prior year periods. The income for the 2018 periods related to gains on deferred compensation plan investments, positive valuation adjustments on our self-insured insurance liabilities, which resulted from an increased discount rate, and gains on lease terminations. The income for the 2017 periods primarily resulted from gains on deferred compensation plan investments.

Provision for income taxes was $2.8 million for the quarter and $7.2 million year-to-date compared to $5.4 million and $15.1 million , respectively, for the prior year periods. The effective tax rate was 20.6% for the quarter and 18.3% year-to-date compared to 36.8% and 36.3% , respectively, for the prior year periods. The 2018 periods were impacted by the Tax Act. In addition, the 2018 quarterly and year-to-date rates benefited from a discrete item relating to share-based compensation of 0.4% and 3.1% , respectively. The Tax Act reduces the U.S. statutory tax rate from 35% to 21% for years after 2017. We revalued our deferred taxes during fiscal 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are realized. The implementation of the Tax Act resulted in certain stranded tax effects in accumulated other comprehensive income. Due to the immateriality of the stranded tax effects, we have elected not to reclassify these amounts from accumulated other comprehensive income to retained earnings. We expect the 2018 fiscal year effective tax rate to be between 16% and 19%. The annual effective tax rate cannot be determined until the end of the fiscal year; therefore, the actual rate could differ from our current estimates.

Net income was $10.8 million for the quarter and $32.2 million year-to-date compared with $9.3 million and $26.4 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 the repurchase of shares of our common stock.
 

27



The following table presents a summary of our sources and uses of cash and cash equivalents for the periods indicated:
 
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Net cash provided by operating activities
$
46,259

 
$
43,525

Net cash used in investing activities
(28,497
)
 
(19,788
)
Net cash used in financing activities
(20,874
)
 
(24,666
)
Decrease in cash and cash equivalents
$
(3,112
)
 
$
(929
)
  
Net cash flows provided by operating activities were $46.3 million for the three quarters ended September 26, 2018 compared to $43.5 million for the three quarters ended September 27, 2017 . The increase in cash flows provided by operating activities was primarily due to the increase in net income during the three quarters ended September 26, 2018 . We believe that our estimated cash flows from operations for 2018 , combined with our capacity for additional borrowings under our credit facility, will enable us to meet our anticipated cash requirements and fund capital expenditures over the next 12 months.
 
Net cash flows used in investing activities were $28.5 million for the three quarters ended September 26, 2018 . These cash flows were primarily comprised of capital expenditures of $17.3 million , acquisitions of restaurants and real estate of $10.4 million and note receivable issuances of $2.5 million . Cash flows for acquisitions included $8.1 million for the acquisition of six franchised restaurants, $1.8 million for real estate and $0.5 million related to a prior year acquisition. Net cash flows used in investing activities were $19.8 million for the three quarters ended September 27, 2017 . These cash flows were primarily comprised of capital expenditures of $13.6 million and acquisitions of restaurants and real estate of $10.0 million. Cash flows for acquisitions included $4.0 million of real estate associated with relocating two high-performing company restaurants due to the impending loss of property control and $6.0 million for the reacquisition of seven franchised restaurants and one former franchised restaurant, which was being remodeled and opened in the fourth quarter of fiscal 2017.

Our principal capital requirements have been largely associated with the following:
  
 
Three Quarters Ended
 
September 26, 2018
 
September 27, 2017
 
(In thousands)
Facilities
$
7,440

 
$
5,243

New construction 
2,238

 
5,208

Remodeling
3,608

 
1,521

Information technology
1,321

 
338

Other
2,687

 
1,248

Capital expenditures (excluding acquisitions)
$
17,294

 
$
13,558

 
Capital expenditures and acquisitions for fiscal 2018 are expected to be approximately $37 to $39 million, including the above mentioned acquisition of franchised restaurants, the opening of a company restaurant, ​the anticipated acquisition of real estate through like-kind exchanges, remodels from recent franchise acquisitions, restaurant offsets and on-going maintenance capital.
 
Cash flows used in financing activities were $20.9 million for the three quarters ended September 26, 2018 , which included cash payments for stock repurchases of $37.1 million , partially offset by net long-term debt borrowings of $16.6 million . Cash flows used in financing activities were $24.7 million for the three quarters ended September 27, 2017 , which included cash payments for stock repurchases of $66.0 million, partially offset by net long-term debt borrowings of $40.8 million.

Our working capital deficit was $43.0 million at September 26, 2018 compared to $53.6 million at December 27, 2017 . The decrease in working capital deficit was primarily related to a reduction of payables, accrued advertising and gift cards during the three quarters ended September 26, 2018 . 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.


28



Credit Facility

As of September 26, 2018 , we had outstanding revolver loans of $278.0 million and outstanding letters of credit under the senior secured revolver of $19.8 million . These balances resulted in availability of $102.2 million under the credit facility. The credit facility includes an accordion feature that would allow us to increase the size of the revolver to $450 million . Prior to considering the impact of our interest rate swaps, described below, the weighted-average interest rate on outstanding revolver loans was 4.12% as of September 26, 2018 . Taking into consideration our interest rate swaps, the weighted-average interest rate of outstanding revolver loans was 4.35% as of September 26, 2018 .

A commitment fee, which is based on our consolidated leverage ratio, is paid on the unused portion of the credit facility and was 0.30% as of September 26, 2018 . Borrowings under the credit facility bear a tiered interest rate, which is based on our consolidated leverage ratio and was set at LIBOR plus 200 basis points as of September 26, 2018 . The maturity date for the credit facility is October 26, 2022 .

The credit facility is available for working capital, capital expenditures and other general corporate purposes. The credit facility is guaranteed by Denny's and its material subsidiaries and is secured by assets of Denny's and its subsidiaries, including the stock of its subsidiaries (other than our insurance captive subsidiary). It includes negative covenants that are usual for facilities and transactions of this type. The credit facility also includes certain financial covenants with respect to a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. We were in compliance with all financial covenants as of September 26, 2018 .

Interest Rate Hedges

We have interest rate swaps to hedge a portion of the forecasted cash flows of our floating rate debt. We designated the interest rate swaps as cash flow hedges of our exposure to variability in future cash flows attributable to payments of LIBOR due on forecasted notional debt obligations.

Under the interest rate swaps, we pay a fixed rate on the notional amount in addition to the current interest rate as determined by our consolidated leverage ratio in effect at the time. A summary of our interest rate swaps as of September 26, 2018 is as follows:

Trade Date
 
Effective Date
 
Maturity Date
 
Notional Amount
 
Fixed Rate
 
 
 
 
 
 
(In thousands)
 
 
March 20, 2015
 
March 29, 2018
 
March 31, 2025
 
$
120,000

 
2.44
%
October 1, 2015
 
March 29, 2018
 
March 31, 2026
 
50,000

 
2.46
%
February 15, 2018
 
March 31, 2020
 
December 31, 2033
 
80,000

(1)  
3.19
%

(1)
The notional amount of the swaps entered into on February 15, 2018 increases annually beginning September 28, 2020 until they reach the maximum notional amount of $425.0 million on September 26, 2029.

As of September 26, 2018 , the fair value of the interest rate swaps was a net asset of $4.3 million , which is comprised of assets of $5.2 million recorded as a component of other noncurrent assets and liabilities of $0.9 million recorded as a component of other noncurrent liabilities in our Condensed Consolidated Balance Sheets.

Implementation of New Accounting Standards

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

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

With the exception of changes in the fair value of our interest rate swaps and the related expected reclassification from accumulated other comprehensive income, 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 8, 9 and 14 to our unaudited condensed consolidated financial statements in Part I, Item 1 of this report.
  

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Item 4.     Controls and Procedures

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

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

Item 1.     Legal Proceedings

Information regarding legal proceedings is incorporated by reference from Note 15 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 27, 2017 .

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
 
Purchases of Equity Securities by the Issuer
 
The table below provides information concerning repurchases of shares of our common stock during the quarter ended September 26, 2018
 
Period
 
Total Number of Shares Purchased
 
 Average Price Paid Per Share (1)
 
Total Number of Shares Purchased as Part of Publicly Announced Programs (2)
 
Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs (2)
 
(In thousands, except per share amounts)
June 28, 2018 - July 25, 2018
70

 
$
15.82

 
70

 
$
166,358

July 26, 2018 - August 22, 2018
210

 
14.89

 
210

 
$
163,235

August 23, 2018 - September 26, 2018
295

 
14.66

 
295

 
$
158,906

Total
575

 
$
14.88

 
575

 
 

(1)
Average price paid per share excludes commissions.
(2)
On October 27, 2017, we announced that our Board of Directors approved a new share repurchase program, authorizing us to repurchase up to an additional $200 million of our common stock (in addition to prior authorizations). Such repurchases may take place from time to time in the open market (including pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Exchange Act) or in privately negotiated transactions, subject to market and business conditions. During the quarter ended September 26, 2018 , we purchased 574,609 shares of our common stock for an aggregate consideration of approximately $8.6 million pursuant to the share repurchase program.


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Item 6.     Exhibits
 
The following are included as exhibits to this report: 
Exhibit No.
 
Description 
 
 
 
10.1
 
 
 
 
10.2
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document

31



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
 
 
DENNY'S CORPORATION
 
 
 
 
 
 
Date:
October 30, 2018
By:    
/s/ F. Mark Wolfinger
 
 
 
 
F. Mark Wolfinger
 
 
 
 
Executive Vice President,
Chief Administrative Officer and
Chief Financial Officer
 
 
 
 
 
 
Date:
October 30, 2018
By:    
/s/ Jay C. Gilmore
 
 
 
 
Jay C. Gilmore
 
 
 
 
Vice President,
Chief Accounting Officer and
Corporate Controller
 

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DENNY’S CORPORATION
AMENDED AND RESTATED
EXECUTIVE AND KEY EMPLOYEE SEVERANCE PAY PLAN






     
 
  


DENNY’S CORPORATION
AMENDED AND RESTATED
EXECUTIVE AND KEY EMPLOYEE SEVERANCE PAY PLAN

    
ARTICLE 1
PURPOSE AND TERM

1.1     Purpose . Denny’s Corporation (the “Company”) established this Denny’s Corporation Amended and Restated Executive and Key Employee Severance Pay Plan (the “Plan”) in order to provide transitional income to certain executive officers and key employees who are involuntarily terminated under certain conditions. The Plan supersedes all prior written or unwritten severance pay plans, notice pay plans, practices or programs offered to or established for participants by the Company except for individual employment contracts, change in control agreements or other similar arrangements providing severance pay or similar benefits. The Plan is intended to be a “welfare plan,” but not a “pension plan,” as defined in ERISA Sections 3(1) and 3(2), respectively, and the Company intends that the Plan comply with all applicable provisions of ERISA.

1.2     Term . The Plan shall generally be effective as of the Effective Date, subject to amendment from time to time in accordance with Section 7.2. The Plan shall continue until terminated pursuant to Article 7 of the Plan.

ARTICLE 2
DEFINITIONS

As used herein, the following words and phrases shall have the following meanings:
    
2.1    “Affiliate” means Denny’s, Inc. and any other corporation or entity (including, but not limited to, a partnership or a limited liability company) that is affiliated with the Company through stock or equity ownership or otherwise, and is designated as an Affiliate for purposes of this Plan by the Committee.

2.2    “Base Salary” means the amount a Participant is entitled to receive as wages or salary on an annualized basis as in effect from time to time, without reduction for any pre-tax contributions to benefit plans. Base Salary does not include bonuses, commissions, overtime pay or income from stock options, stock grants or other incentive compensation.

2.3    “Board” means the Board of Directors of the Company.

2.4    “Cause” as a reason for a Participant’s termination of employment shall mean any of the following acts by the Participant, as determined by the Board: gross neglect of duty; prolonged absence from duty without the consent of the Company; intentionally engaging in any activity that is in conflict with or adverse to the business or other interests of the Company; willful misconduct, misfeasance or malfeasance of duty which is reasonably determined to be detrimental to the Company; conviction of, or plea of guilty or nolo contendere, to any crime


1
 
 
  


involving the personal enrichment of the Participant at the expense of the Company or shareholders of the Company; conviction of a felony or the conviction of any crime involving dishonesty or moral turpitude.

2.5    “Change in Control” means the occurrence of any of the following events:

(a)    any person becomes a “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates, other than in connection with the acquisition by the Company or its Affiliates of a business) representing 30% or more of either the then outstanding Shares of Stock or the combined voting power of the Company’s then outstanding securities; or

(b)    The following individuals cease for any reason to constitute at least two-thirds (2/3) of the number of directors then serving on the Board: individuals who, on the Effective Date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company (as such terms are used in Rule 14A-11 of the 1934 Act) whose appointment or election by the Board or nomination of election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the Company’s directors then still in office who either were directors on the Effective Date of the Plan, or whose appointment, election, or nomination for election was previously approved); or

(c)    the consummation of a merger or consolidation with any other entity, other than (i) a merger or consolidation which would result in (A) the voting securities of the Company then outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, greater than 65% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, and (B) individuals described in Section 2.1(f)(ii) above constitute more than one-half of the members of the board of directors of the surviving entity or ultimate parent thereof; or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates, other than in connection with the acquisition by the Company or its Affiliates of a business) representing 30% or more of either the then outstanding shares of the Company or the combined voting power of the Company’s then outstanding securities; or (iii) a merger or consolidation following which the record holders of the voting securities of the Company immediately prior to such transaction or series of integrated transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of integrated transactions; or

2





    (d)    the consummation of (i) a plan of complete liquidation or dissolution of the Company; or (ii) an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, greater than 65% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale or disposition; or

Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred unless the circumstances giving rise to such Change in Control qualify as a “change in control event” under Code Section 409A and applicable regulations.

Furthermore, notwithstanding the foregoing, a Change in Control will not be deemed to have occurred by reason of a distribution of the voting securities of any of the Company's Subsidiaries to the stockholders of the Company, or by means of an initial public offering of such securities.

2.6    “Change in Control Severance Benefits” means the benefits payable in accordance with Sections 4.2 and 4.4 of the Plan.

2.7    “Code” means the Internal Revenue Code of 1986, as amended from time to time, and includes a reference to the underlying proposed or final regulations.

2.8    “Committee” means the Compensation and Incentives Committee of the Board.

2.9    “Company” means Denny’s Corporation, or its successor as provided in Section 8.7.

2.10    “Disability” shall mean any physical or mental condition which would qualify a Participant for a disability benefit under the long-term disability plan maintained by the Company and applicable to that particular Participant, or if no such disability plan exists, “Disability” means Permanent and Total Disability as defined in Section 22(e)(3) of the Code.

2.11    “Effective Date” means January 29, 2008. The Plan was amended and restated effective as of January 25, 2011, September 18, 2013, and again as of May 9, 2017.

2.12    “Employee” means any regular, full-time or part-time employee of the Company or any Affiliate. Where the context requires in connection with a Participant who is employed directly by an Affiliate, the term “Company” as used herein includes such Affiliate.

2.13    “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

2.14    “Good Reason” means, as a reason for a Participant’s resignation from employment, the occurrence of any of the following without the consent of the Participant:

3



(a) the assignment to the Participant of duties materially inconsistent with, or a material diminution in, the Participant’s authority, duties or responsibilities,

(b) a material reduction by the Company or an Affiliate in the Participant’s Base Salary or Target Annual Bonus (other than an overall reduction in salaries or target annual bonuses of 10% or less that affects substantially all of the Company’s full-time employees),

(c) a material change in the geographic location at which the Participant is required to perform (it being agreed that a required relocation of more than 50 miles shall be material), or

(d) the continuing material breach by the Company or an Affiliate of any employment agreement between the Participant and the Company or an Affiliate after the expiration of any applicable period for cure.

(e) any failure by the Company to comply with and satisfy Section 9.7 of this Agreement.

A termination by the Participant shall not constitute termination for Good Reason unless the Participant shall first have delivered to the Company, not later than 90 days after the initial occurrence of an event deemed to give rise to a right to terminate for Good Reason, written notice setting forth with specificity the occurrence of such event, and there shall have passed a reasonable time (not less than 30 days) within which the Company may take action to correct, rescind or otherwise substantially reverse the occurrence supporting termination for Good Reason as identified by the Participant.

2.15    “Participant” means any Employee designated by the Committee as a participant in the Plan.

2.16    “Plan” means this Denny’s Corporation Executive and Key Employee Severance Pay Plan.

2.17    “Regular Severance Benefits” means the benefits payable in accordance with Sections 4.2 and 4.4 of the Plan.

2.18    “Target Annual Bonus” means, with respect to any Participant, the Participant’s target bonus opportunity under the annual corporate incentive plan applicable to the Participant.

2.19    “Termination Date” means the date of the termination of a Participant’s employment with the Company as determined in accordance with Article 6.

2.20    “Tier I Participant” means any Employee designated by the Committee as a Tier I Participant in the Plan and identified as such in the records of the Plan maintained by the Company at any time during the term of the Plan.


4



2.21    Tier II Participant” means any Employee designated by the Committee as a Tier II Participant in the Plan and identified as such in the records of the Plan maintained by the Company at any time during the term of the Plan.

ARTICLE 3
ELIGIBILITY

3.1     Participation . The Committee or the Board shall designate from time to time those Employees or classes of Employees who are Participants in the Plan. In the event the Committee or the Board designates certain Participants by job title, position, function or responsibilities, an Employee who is appointed to such a position after the Effective Date of this Plan shall be a Participant upon the date he or she begins his or her duties in such position, unless otherwise determined by the Committee or the Board. Effective as of September 18, 2013, the Company’s Chief Executive Officer and all of its Executive Vice Presidents are designated as Tier I Participants, and all of the Company’s Senior Vice Presidents and Vice Presidents are designated as Tier II Participants. The list of Participants may be amended by the Committee or the Board at any time prior to a Change in Control to add or remove individual Participants or classes of Participants; provided, however, that the removal of individual Participants or classes of Participants from the Plan shall not be effective for at least 12 months after notification to the Participants of such Committee or Board action. If a Change in Control occurs during such 12-month period, any such action to remove individual Participants or classes of Participants shall be null and void.

3.2     Duration of Participation . Subject to Article 4 and Article 7, an Employee shall cease to be a Participant in the Plan if (i) his or her employment is terminated under circumstances in which he or she is not entitled to Severance Benefits under the terms of this Plan, or (ii) prior to a Change in Control, he or she is removed as a Participant or ceases to be among the class of employees designated by the Committee or the Board as Participants. Notwithstanding the foregoing, a Participant who has terminated employment and is entitled to Severance Benefits under Article 4 shall remain a Participant in the Plan until the full amount of the Regular Severance Benefits or Change in Control Severance Benefits, as applicable, and any other amounts payable under the Plan have been paid to the Participant.

ARTICLE 4
SEVERANCE BENEFITS

4.1     Right to Change in Control Severance Benefits .

(a)    A Participant shall be entitled to receive from the Company Change in Control Severance Benefits in the amount provided in Section 4.3 if, within the two-year period following a Change in Control, (i) the Participant’s employment with the Company or any Affiliate is terminated by the Company without Cause (other than by reason of the Participant’s death or Disability) or (ii) the Participant’s employment is terminated by the Participant for Good Reason within a period of 180 days after the occurrence of the event giving rise to Good Reason.


5



(b)    If a Change in Control occurs and (i) a Participant’s employment with the Company or any Affiliate was terminated by the Company without Cause (other than by reason of the Participant’s death or Disability) prior to the date of the Change in Control or (ii) an action was taken with respect to the Participant prior to the date of the Change in Control that would have constituted Good Reason if taken after a Change in Control, and the Participant can reasonably demonstrate that such termination or action, as applicable, occurred at the request of a third party who had taken steps reasonably calculated to effect the Change in Control, then the termination or action, as applicable, will be treated for all purposes of this Plan as having occurred immediately following the Change in Control and such former Participant shall be entitled to the benefits of the Plan accordingly.

(c)    Notwithstanding anything to the contrary, no Change in Control Severance Benefits shall be provided to a Participant unless the Participant has executed and not revoked a Separation Agreement and General Release in substantially the form attached hereto as Exhibit A (the “Release”) within the time period set forth in the Release.

4.2     Right to Regular Severance Benefits .

(a)    A Participant shall be entitled to receive from the Company Regular Severance Benefits in the amount provided in Section 4.4 if (i) the Participant’s employment with the Company or any Affiliate is terminated (a) by the Company without Cause (other than by reason of the Participant’s death or Disability) or (b) by the Participant for Good Reason within a period of 180 days after the occurrence of the event giving rise to Good Reason, and (ii) the Participant’s termination of employment does not occur within the two-year period following a Change in Control and the Participant is not otherwise entitled to receive Change in Control Severance Benefits pursuant to Section 4.1.

(b)    Notwithstanding anything to the contrary, no Regular Severance Benefits shall be provided to a Participant unless the Participant has executed and not revoked a Separation Agreement and General Release in substantially the form attached hereto as Exhibit A (the “Release”) within the time period set forth in the Release. Any installment payments under Section 4.4(a)(i) that would otherwise be payable prior to the effectiveness of the Release shall be accumulated and paid with the next installment payment that is otherwise due following the effectiveness of the Release. In addition, with respect to any Participant who serves on the Company’s Board of Directors, no Regular Severance Benefits shall be provided to such Participant unless and until the Participant resigns as a member of the Board of Directors.

4.3     Amount of Change in Control Severance Benefits . If a Participant’s employment is terminated in circumstances entitling him or her to Change in Control Severance Benefits as provided in Section 4.1, then:

(a) the Company shall pay to the Participant in a single lump sum cash payment on the 60th day after the Termination Date (or such later date as may be required by Section 8.2), the aggregate of the following amounts (for purposes of Section 409A of the Code, each installment shall be deemed to be a separate payment):

6




(i)    a pro rata bonus equal to the product of (A) the higher of Participant’s Target Annual Bonus for the year in which the Change in Control occurs or Participant’s Target Annual Bonus for the year in which the Termination Date occurs, and (B) a fraction, the numerator of which is the number of days in the current fiscal year through the Termination Date, and the denominator of which is 365;

(ii)    a severance payment equal to two times, in the case of Tier I Participants, or one times, in the case of Tier II Participants, the sum of (x) the Participant’s Base Salary (at the highest rate in effect for any period within three years prior to the Termination Date) and (y) the higher of Participant’s Target Annual Bonus for the year in which the Change in Control occurs or Participant’s Target Annual Bonus for the year in which the Termination Date occurs; and

(iii)    with respect to Tier I Participants only, a payment equal to the full cost to provide certain group health benefits sponsored by the Company and maintained by the Tier I Participant on the Termination Date. The amount payable under this Section 4.3(a)(iii) shall be calculated based on the monthly cost (including any portion of the cost paid by the employee) to provide the same level of coverage of such group health benefits maintained by the Tier I Participant as of the Termination Date for 24 months. For purposes of this Section 4.3(a)(iii): (i) group health benefits means any of the following: group medical, dental, vision, and/or prescription drug benefits, and (ii) if the group health benefits are provided pursuant to an insurance contract issued by an insurance carrier to the Company, the cost of such benefits shall be determined based on the monthly premium charged to the Company for such coverage on the Termination Date or, if the group health benefits are self-insured by the Company, the cost of such benefits will be the “applicable premium” determined in accordance with Code Section 4980B(f)(4) and the regulations issued thereunder for such for the year in which the Termination Date occurs. The Tier I Participant will be entitled to make an election to continue group health benefits in accordance with the terms of the various group health plans.
            
(b) with respect to Tier II Participants only, if the Tier II Participant elects to continue participation in any group medical, dental, vision and/or prescription drug plan benefits to which the Tier II Participant and/or the Tier II Participant’s eligible dependents would be entitled under Section 4980B of the Internal Revenue Code (COBRA), then for a period not to exceed twelve (12) months the Company shall pay the excess of (i) the COBRA cost of such coverage over (ii) the amount that the Participant would have had to pay for such coverage if he had remained employed during such period and paid the active employee rate for such coverage, provided, however, that if the Participant becomes eligible to receive group health benefits under a program of a subsequent employer or otherwise (including coverage available to the Participant’s spouse), the Company’s obligation to pay any portion of the cost of health coverage as described herein shall cease, except as otherwise provided by law;


7



(c) with respect to Tier I Participants only, for 12 months following the Termination Date, the Participant shall be eligible for up to $20,000 of outplacement services payable by the Company directly to a provider or providers selected by the Participant, provided, however, that the Participant must provide written notification to the Company within six months following the Termination Date of his or her intention to utilize such outplacement services. With respect to Tier II Participants only, the Participant shall be eligible for outplacement services payable by the Company in accordance with Company policy in effect as of the Termination Date. The benefits provided under this Section 4.3(c) in any one calendar year shall not affect the amount of benefits provided in any other calendar year; the Company’s payment for such benefits shall be made on or before December 31 of the year following the year in which the expense was incurred; and the Participant’s rights to such benefits shall not be subject to liquidation or exchange for another benefit;

(d) all of the Participant’s equity or incentive awards outstanding on the Termination Date shall be governed by the plans under which they were granted and the agreements evidencing such awards; and

(e) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Participant Base Salary through the Termination Date, any accrued vacation pay to the extent not theretofore paid, and any other amounts or benefits required to be paid or provided or which the Participant is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies.

4.4     Amount of Regular Severance Benefits . If a Participant’s employment is terminated in circumstances entitling him or her to Regular Severance Benefits as provided in Section 4.2, then:

(a) the Company shall pay to the Participant, at the time or times specified below (or such later date as may be required by Section 8.2), the following amounts (for purposes of Section 409A of the Code, each installment shall be deemed to be a separate payment:

(i) the Company shall continue to pay Base Salary to the Participant for a number of months following the Termination Date and execution of the Release, in accordance with the Company’s normal payroll practices, equal to the following: (i) 12 months, in the case of all Tier I Participants and those Tier II Participants who as of the Termination Date have been employed by the Company for at least two years, or (ii) six months, in the case of Tier II Participants who as of the Termination Date have been employed by the Company for less than two years;

(ii) the Company shall pay to the Participant, at the same time annual bonus awards are payable to the Company’s other executive officers, a pro rata annual bonus, in an amount equal to the product of (A) Participant’s annual bonus which he or she would have earned for the year in which the Termination Date occurs, determined based on the Company’s actual performance for the full fiscal year (and disregarding for this purpose any individual performance metrics), and (B) a fraction,

8



the numerator of which is the number of days in the current fiscal year through the Termination Date, and the denominator of which is 365; and

(iii)    with respect to Tier I Participants only, the Company shall pay to the Tier I Participant for a period of 12 months following the Termination Date and execution of the Release, monthly payments equal to the full monthly cost to provide certain group health benefits sponsored by the Company and maintained by the Tier I Participant on the Termination Date. The amount payable under this Section 4.4(a)(iii) shall be calculated based on the monthly cost (including any portion of the cost paid by the employee) to provide the same level of coverage of such group health benefits maintained by the Tier I Participant as of the Termination Date. For purposes of this Section 4.4(a)(iii): (i) group health benefits means any of the following: group medical, dental, vision, and/or prescription drug benefits, and (ii) if the group health benefits are provided pursuant to an insurance contract issued by an insurance carrier to the Company, the cost of such benefits shall be determined based on the monthly premium charged to the Company for such coverage on the Termination Date or, if the group health benefits are self-insured by the Company, the cost of such benefits will be the “applicable premium” determined in accordance with Code Section 4980B(f)(4) and the regulations issued thereunder for such for the year in which the Termination Date occurs. The Tier I Participant will be entitled to make an election to continue group health benefits in accordance with the terms of the various group health plans; and

(iv) with respect to Tier II Participants only, If the Tier II Participant elects to continue participation in any group medical, dental, vision and/or prescription drug plan benefits to which the Tier II Participant and/or the Tier II Participant’s eligible dependents would be entitled under Section 4980B of the Internal Revenue Code (COBRA), then for a period not to exceed the number of months the Tier II Participant is entitled to receive Base Salary continuation from the Company under Section 4.4(a)(i) above, the Company shall pay the excess of (i) the COBRA cost of such coverage over (ii) the amount that the Tier II Participant would have had to pay for such coverage if he had remained employed during such period and paid the active employee rate for such coverage, provided, however, that if the Tier II Participant becomes eligible to receive group health benefits under a program of a subsequent employer or otherwise (including coverage available to the Tier II Participant’s spouse), the Company’s obligation to pay any portion of the cost of health coverage as described herein shall cease, except as otherwise provided by law.

(b) with respect to Tier I Participants only, for 12 months following the Termination Date, the Participant shall be eligible for up to $20,000 of outplacement services payable by the Company directly to a provider or providers selected by the Participant, provided, however, that the Participant must provide written notification to the Company within six months following the Termination Date of his or her intention to utilize such outplacement services. With respect to Tier II Participants only, the Participant shall be eligible for outplacement services payable by the Company in accordance with Company policy in effect

9



as of the Termination Date. The benefits provided under this Section 4.3(c) in any one calendar year shall not affect the amount of benefits provided in any other calendar year; the Company’s payment for such benefits shall be made on or before December 31 of the year following the year in which the expense was incurred; and the Participant’s rights to such benefits shall not be subject to liquidation or exchange for another benefit;

(c) all of the Participant’s equity or incentive awards outstanding on the Termination Date shall be governed by the plans under which they were granted and the agreements evidencing such awards; and

(d) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Participant Base Salary through the Termination Date, any accrued vacation pay to the extent not theretofore paid, and any other amounts or benefits required to be paid or provided or which the Participant is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies.

4.5     Non-Duplication of Benefits . In the event that a Participant becomes entitled to receive benefits under this Plan and any such benefit duplicates a benefit that would otherwise be provided under any other plan, program, arrangement or agreement as a result of the Participant’s termination of employment, then the Participant shall be entitled to receive the greater of the benefit available under the Plan, on the one hand, and the benefit available under such other plan, program, arrangement or agreement, on the other.

4.6     Full Settlement; No Mitigation . The Company’s obligation to make the payments provided for under this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Participant or others. In no event shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Participant obtains other employment.
    

10



ARTICLE 5
EFFECT OF SECTIONS 280G AND 4999 OF THE CODE
    
5.1     Mandatory Reduction of Payments in Certain Events .

(a)    Anything in this Plan to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of a Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then, prior to the making of any Payment to the Participant, a calculation shall be made comparing (i) the net benefit to the Participant of the Payment after payment of the Excise Tax, to (ii) the net benefit to the Participant if the Payment had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payment shall be limited to the extent necessary to avoid being subject to the Excise Tax (the "Reduced Amount"). In that event, the Participant shall direct which Payments are to be modified or reduced.

(b)    The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to Section 5.1(a)(i) and (ii) above shall be made by an independent, nationally recognized accounting firm or compensation consulting firm mutually acceptable to the Company and the Participant (the "Determination Firm") which shall provide detailed supporting calculations. Any determination by the Determination Firm shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Determination Firm hereunder, it is possible that Payments which the Participant was entitled to, but did not receive pursuant to Section 5.1(a), could have been made without the imposition of the Excise Tax ("Underpayment"). In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant.

(c)    In the event that the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, this Article 5 shall be of no further force or effect.

ARTICLE 6
TERMINATION OF EMPLOYMENT

6.1     Written Notice Required . Any purported termination of employment, whether by the Company or by the Participant, shall be communicated by written notice to the other (a “Notice of Termination”).

6.2     Termination Date . In the case of the Participant's death, the Participant's Termination Date shall be his or her date of death. In all other cases, the Participant's Termination Date shall be the date of receipt of the Notice of Termination or any later date specified therein within 60 days after receipt of the Notice of Termination.


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ARTICLE 7
DURATION, AMENDMENT AND TERMINATION, CLAIMS
 
7.1     Duration . The Plan shall become effective as of the Effective Date, and shall continue until terminated by the Committee or the Board. Subject to Section 7.2, the Committee or the Board may terminate the Plan as of any date that is at least 12 months after the date of the Committee or the Board’s action. If any Participants become entitled to any payments or benefits hereunder during such 12-month period, this Plan shall continue in full force and effect and shall not terminate or expire with respect to such Participants until after all such Participants have received such payments and benefits in full.
 
7.2     Amendment and Termination . Subject to the following sentence, the Plan may be amended from time to time in any respect by the Committee or the Board; provided, however, that any amendment that would adversely affect the rights or potential rights of Participants shall not be effective for at least 12 months after the date of the Committee or the Board’s action; and, provided further, in the event that a Change in Control occurs within 12 months following an amendment to the Plan that would adversely affect the rights or potential rights of Participants, the amendment will not be effective. In anticipation of or in connection with or within three years following a Change in Control, the Plan shall not be subject to amendment, change, substitution, deletion, revocation or termination in any respect which adversely affects the rights of Participants without the consent of each Participant so affected. For the avoidance of doubt, removal of a Participant as a Participant (other than as a result of the Participant ceasing to be an Employee), a decrease in the Participant’s Tier Level or any other reduction in payments or benefits shall be deemed to be an amendment of the Plan which adversely affects the rights of the Participant.
 
7.3     Form of Amendment . The form of any amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Company, certifying that the amendment or termination has been approved by the Committee or the Board. Subject to Sections 7.1 and 7.2 above (i) an amendment of the Plan in accordance with the terms hereof shall automatically effect a corresponding amendment to all Participants’ rights and benefits hereunder, and (ii) a termination of the Plan shall in accordance with the terms hereof automatically effect a termination of all Participants’ rights and benefits hereunder.
 
7.4     Claims Procedure .

(a)    A Participant may file a claim with respect to amounts asserted to be due hereunder by filing a written claim with the Committee specifying the nature of such claim in detail. The Committee shall notify the claimant within 60 days as to whether the claim is allowed or denied, unless the claimant receives written notice from the Committee prior to the end of the 60 day period stating that special circumstances require an extension of time for a decision on the claim, in which case the period shall be extended by an additional 60 days. Notice of the Committee's decision shall be in writing, sent by mail to the Participant's last known address and, if the claim is denied, such notice shall (i) state the specific reasons for denial, (ii) refer to the specific provisions of the Plan upon which such denial is based, and (iii) if applicable, describe any additional information or material necessary to perfect the claim, an explanation of why such information or material is necessary, and an explanation of the review procedure in Section 7.4(b).

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(b)    A claimant is entitled to request a review of any denial of his claim under Section 7.4(a). The request for review must be submitted to the Committee in writing within 60 days of mailing by the Committee of notice of the denial. Absent a request for review within the 60 day period, the claim will be deemed conclusively denied. The claimant or his representative shall be entitled to review all pertinent documents, and to submit issues and comments orally and in writing to the Committee. The review shall be conducted by the Committee, which shall afford the claimant a hearing and which shall render a decision in writing within 60 days of a request for a review, provided that, if the Committee determines prior to the end of such 60 day review period that special circumstances require an extension of time for the review and decision of the denial, the period for review and decision on the denial shall be extended by an additional 60 days. The claimant shall receive written notice of the Committee's review decision, together with specific reasons for the decision and reference to the pertinent provisions of the Plan.

ARTICLE 8
CODE SECTION 409A

8.1    Notwithstanding anything in this Plan to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code would otherwise be payable or distributable hereunder by reason of a Participant’s termination of employment, such amount or benefit will not be payable or distributable to the Participant by reason of such circumstance unless (i) the circumstances giving rise to such termination of employment meet any description or definition of “separation from service” in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition), or (ii) the payment or distribution of such amount or benefit would be exempt from the application of Section 409A of the Code by reason of the short-term deferral exemption or otherwise. This provision does not prohibit the vesting of any amount upon a termination of employment, however defined. If this provision prevents the payment or distribution of any amount or benefit, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a Section 409A-compliant “separation from service” or such later date as may be required by Section 8.2 below.

8.2    Notwithstanding anything in this Plan to the contrary, if any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code would otherwise be payable or distributable under this Plan by reason of a Participant’s separation from service during a period in which he is a Specified Employee (as defined below), then, subject to any permissible acceleration of payment by the Company under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):

(a)    if the payment or distribution is payable in a lump sum, the Participant’s right to receive payment or distribution of such non-exempt deferred compensation will be delayed until the earlier of the Participant’s death or the first day of the seventh month following the Participant’s separation from service; and


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(b)    if the payment or distribution is payable over time, the amount of such non-exempt deferred compensation that would otherwise be payable during the six-month period immediately following the Participant’s separation from service will be accumulated and the Participant’s right to receive payment or distribution of such accumulated amount will be delayed until the earlier of the Participant’s death or the first day of the seventh month following the Participant’s separation from service, whereupon the accumulated amount will be paid or distributed to the Participant and the normal payment or distribution schedule for any remaining payments or distributions will resume.

For purposes of this Agreement, the term “Specified Employee” has the meaning given such term in Code Section 409A and the final regulations thereunder (“Final 409A Regulations”), provided, however , that, as permitted in the Final 409A Regulations, the Company’s Specified Employees and its application of the six-month delay rule of Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board of Directors, which shall be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Plan.

ARTICLE 9
MISCELLANEOUS
  
9.1     Legal Fees and Expenses . The Company shall reimburse all legal fees and related expenses (including the costs of experts, evidence and counsel) reasonably and in good faith incurred by a Participant if the Participant prevails on a material issue with respect to his or her claim for relief in an action by the Participant to obtain or enforce any right or benefit provided by this Plan. If a Participant is entitled to recover fees and expenses under this Section 9.1, the reimbursement of an eligible expense shall be made within 10 business days after delivery of the Participant’s respective written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require, but in no event later than March 15 of the year after the year in which such rights are established.

9.2     Employment Status . This Plan does not constitute a contract of employment or impose on the Participant or the Company any obligation to retain the Participant as an Employee, to change the status of the Participant’s employment, or to change the Company’s policies regarding termination of employment.
 
9.3     Nature of Plan and Benefits . Participants and any other person who may have rights hereunder shall be mere unsecured general creditors of the Company with respect to a Severance Benefits due hereunder, and all amounts (other than fully insured benefits) shall be payable from the general assets of the Company.

9.4     Withholding of Taxes . The Company may withhold from any amount payable or benefit provided under this Plan such Federal, state, local, foreign and other taxes as are required to be withheld pursuant to any applicable law or regulation.


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9.5     No Effect on Other Benefits . Severance Benefits shall not be counted as compensation for purposes of determining benefits under other benefit plans, programs, policies and agreements, except to the extent expressly provided therein or herein.

9.6     Validity and Severability . The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

9.7     Successors . This Plan shall bind any successor of or to the Company, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same extent that the Company would be obligated under this Plan if no succession had taken place. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company’s obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. The term “Company,” as used in this Plan, shall mean the Company as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this Plan.

9.8     Assignment . This Plan shall inure to the benefit of and shall be enforceable by a Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If a Participant should die while any amount is still payable to the Participant under this Plan had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the Participant’s estate. A Participant’s rights under this Plan shall not otherwise be transferable or subject to lien or attachment.

9.9     Enforcement . This Plan is intended to constitute an enforceable contract between the Company and each Participant subject to the terms hereof.

9.10     Governing Law . To the extent not preempted by ERISA, the validity, interpretation, construction and performance of the Plan shall in all respects be governed by the laws of Delaware, without reference to principles of conflict of law.

9.11     Arbitration . Any dispute or controversy arising under or in connection with this Plan that cannot be mutually resolved by the Company and a Participant and their respective advisors and representatives shall be settled exclusively by arbitration in Atlanta, Georgia in accordance with the rules of the American Arbitration Association before one arbitrator of exemplary qualifications and stature, who shall be selected jointly by an individual to be designated by the Company and an individual to be selected by the Participant, or if such two individuals cannot agree on the selection of the arbitrator, who shall be selected by the American Arbitration Association. The Company shall reimburse the Participant’s reasonable legal fees if he prevails on a material issue in arbitration.


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EXHIBIT A

SEPARATION AGREEMENT AND GENERAL RELEASE

(Date Given to Employee)

This Separation Agreement and General Release (this "Agreement") is entered into by and between Denny's Corporation (together with its subsidiaries and affiliates, the "Company") and the undersigned employee ("Employee").

Notice to Employee:

Under the Denny's Corporation Amended and Restated Executive and Key Employee Severance Pay Plan (the "Plan"), you are eligible to receive severance pay if you agree to waive, to the extent permitted by law, all of your potential claims against the Company and agree to the other terms in this Separation Agreement. This means that you cannot sue or pursue any other claim against the Company as provided for in this release. PLEASE READ THIS DOCUMENT CAREFULLY BEFORE YOU SIGN IT. ALSO, YOU ARE ADVISED TO CONSULT AN ATTORNEY OR OTHER REPRESENTATIVE BEFORE SIGNING THIS DOCUMENT. YOU HAVE TWENTY-ONE (21) DAYS TO THINK ABOUT WHETHER YOU WANT TO SIGN THIS DOCUMENT AND TO CONSULT WHOMEVER YOU WISH.

1.    In consideration for signing this Separation Agreement and General Release, you are entitled to receive severance pay and benefits under the Plan.

2.    IF YOU SIGN THIS AGREEMENT, YOU ARE PERMANENTLY WAIVING AND RELEASING (GIVING UP) YOUR RIGHT TO SUE THE COMPANY FOR ANY REASON PROVIDED HEREIN. YOUR WAIVER AND RELEASE WILL INCLUDE ANY RIGHTS YOU HAVE TO SUE THE COMPANY UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT, TITLE VII OF THE CIVIL RIGHTS ACT, THE AMERICANS WITH DISABILITIES ACT, STATE WRONGFUL TERMINATION LAWS, AND ALL OTHER LAWS AND REGULATIONS DESCRIBED BELOW.

3.    You will be waiving and releasing all claims which have arisen, whether known or unknown, that are based on acts or events that have occurred up until the date you sign this Agreement.

4.    Because this waiver and release involves your legal rights, you are advised to speak with an attorney before signing this Agreement. You have twenty-one (21) days from the date listed at the top of this page to make your decision. If you have not signed this Agreement by the end of the twenty-first (21st) day after the date listed above, you will be ineligible to receive any severance pay.

5.     In addition, you will have seven (7) days from the date you sign this Agreement to revoke it. This means that if you change your mind for any reason after signing the Agreement, you can revoke it if you notify the Company within seven (7) days. You must notify the Company in writing

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and the notice must be received by the Company within seven (7) days of the date you sign this Agreement. This Agreement will become effective on the eighth (8th) day after you sign it (the “Effective Date”). Any revocation of this Agreement must be made in writing and delivered within the seven-day revocation period to: Senior Vice-President of Human Resources, Denny's Corporation, 203 East Main Street, Spartanburg, SC 29319.

Part I         Release of Claims and Covenant Not to Sue.

In consideration of the severance pay from the Company set forth above, the receipt and sufficiency of which are hereby acknowledged, Employee, on behalf of himself and his or her heirs, executors, administrators, agents, and successors in interest, and/or assigns, hereby UNCONDITIONALLY RELEASES AND DISCHARGES the Company, its predecessors, successors, subsidiaries, parent corporations, assigns, joint ventures, and affiliated companies, and their respective agents, legal representatives, shareholders, attorneys, employees, officers, directors, insurers and reinsurers, and employee benefit plans (and the trustees, administrators, fiduciaries, agents, representatives, insurers and reinsurers of such plans) (collectively, the “Releasees”) from ALL CLAIMS, LIABILITIES, DEMANDS AND CAUSES OF ACTION, whether known or unknown, fixed or contingent, that he or she may have or claim to have against Company or any of the Releasees for any reason as of the Effective Date (as defined above) to the maximum extent allowed by law. Except as provided in Part IV below, Employee further hereby AGREES NOT TO FILE A LAWSUIT or other legal claim or charge or to assert any claim against any of the Releasees that is covered by this Release of Claims. This Release and Covenant Not To Sue includes, but is not limited to, claims arising under federal, state or local laws prohibiting employment discrimination, claims arising under severance plans and contracts, and claims growing out of any legal restrictions on the Company’s rights to terminate its employees or to take any other employment action, whether statutory, contractual or arising under common law or case law. Employee specifically acknowledges and agrees that he or she is releasing any and all rights under federal, state and local employment laws including, without limitation, the Age Discrimination in Employment Act of 1967 (“ADEA”), as amended, 29 U.S.C. § 621, et seq ., the Civil Rights Act of 1964 (“Title VII”), as amended, 42 U.S.C. § 2000e, et seq ., 42 U.S.C. § 1981, as amended, the Americans With Disabilities Act (“ADA”), as amended, 42 U.S.C. § 12101 et seq ., the Rehabilitation Act of 1973, as amended, as amended, 29 U.S.C. § 701, et seq ., the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. § 301 et seq ., the Worker Adjustment and Retraining Notification Act (“WARN”), 29 U.S.C. § 2101, et seq ., the Family and Medical Leave Act of 1993 (“FMLA”), as amended, 29 U.S.C. § 2601 et seq ., the Employee Polygraph Protection Act of 1988, 29 U.S.C. § 2001, et seq ., all other state and federal code sections and legal principles, including, without limitation, claims for defamation and slander.

Employee represents and warrants that he or she does not have any complaint, claim or action pending against Company or any of the Releasees.





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Part II     Restrictions on Employee's Conduct.

(a)     General. Employee understands and agrees that the purpose of the provisions of this Part II is to protect the legitimate business interests of the Company, as more fully described below, and is not intended to impair or infringe upon Employee's right to work or earn a living. Employee hereby acknowledges and agrees (i) that Employee has received good and valuable consideration for the post-employment restrictions set forth in this Part II in the form of the compensation and benefits provided for in the Plan, and (ii) that the post-employment restrictions set forth in this Part II are reasonable and that they do not, and will not, unduly impair Employee's ability to earn a living. The Company conducts its restaurant business through franchisees and DFO, LLC is restricted in hiring persons from franchisees. For avoidance of doubt and potential liability to Company, the parties agree that Employee will not solicit anyone who works for a Person party to a franchise agreement with DFO, LLC (such Person is referred to as a “Franchisee.”)

(b)     Definitions. The following capitalized terms used in this Part II
shall have the following meanings:

"Competitive Services" means the partial or total ownership, management or operation of any restaurant or restaurant chain within the family dining segment, including, without limitation, the provision of consulting or advising services to any Person (as defined herein) engaged in the ownership, management or operation of any restaurant or restaurant chain in the family dining segment or the full-service breakfast segment, whether such services are paid or unpaid.

"Confidential Information" means all information regarding the Company, its activities, businesses or customers that is the subject of reasonable efforts by the Company to maintain its confidentiality and that is not generally disclosed by practice or authority to persons not employed by the Company, but that does not rise to the level of a Trade Secret (as defined herein). "Confidential Information" shall include, but is not limited to, financial plans and data concerning the Company; management planning information; business plans; operational methods; market studies; marketing plans or strategies; product development techniques or plans; customer lists; customer files, data and financial information, details of customer contracts; current and anticipated customer requirements; identifying and other information pertaining to business referral sources; past, current and planned research and development; business acquisition plans; and new personnel acquisition plans. "Confidential Information" shall not include information that has become generally available to the public by the act of one who has the right to disclose such information without violating any right or privilege of the Company. This definition shall not limit any definition of "confidential information" or "trade secrets" or any equivalent term under state or federal law.

"Person" means any individual or any corporation, partnership, joint venture, limited liability company, association or other entity or enterprise.

"Principal or Representative" means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.


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"Protected Employees" means any then-current employees of the Company or any of its Franchisees who were employed by the Company or any Franchisee at any time during Employee’s employment.

"Restricted Territory" means the United States of America.

"Restrictive Covenants" means the restrictive covenants contained in Part II of this Agreement.

"Separation Date" means the date of Employee's termination of employment for any reason whatsoever.

“Trade Secrets” means all information regarding the Company, its activities, businesses or customers, without regard to form, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, distribution lists or a list of actual or potential customers, advertisers or suppliers, which is not commonly known by or available to the public and which information: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Without limiting the foregoing, Trade Secret means any item of confidential information that constitutes a “trade secret(s)” under applicable common law or statutory law.

(c)     Restrictive Covenants.

(i) Restriction on Disclosure and Use of Confidential Information and Trade Secrets. Employee hereby agrees that Employee shall not, directly or indirectly, at any time reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential Information, and Employee shall not, directly or indirectly, at any time use or make use of any Confidential Information in connection with any business activity other than that of the Company. At all times after the Separation Date, Employee shall not, directly or indirectly, transmit or disclose any Trade Secret to any Person other than the Company, and shall not make use of any such Trade Secret, directly or indirectly, for himself or for any Person other than the Company. The Parties acknowledge and agree that this Agreement is not intended to, and does not, alter either the Company’s rights or Employee’s obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. Anything herein to the contrary notwithstanding, Employee shall not be restricted from disclosing or using Confidential Information that is required to be disclosed by law, court order or other legal process; provided , however , that, except as protected by Part IV below, in the event disclosure is required by law, Employee shall provide the Company with at least five (5) days written notice of such requirement prior to any such disclosure.

(ii) Nonsolicitation of Protected Employees. Employee agrees that during the twelve (12) month period following the Separation Date, Employee shall not, directly or indirectly, on Employee's own behalf or on behalf of any other Person, solicit or induce or attempt

4



to solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or any Franchisee or to enter into employment with any other Person.

(iii) Noncompetition with the Company. Employee hereby agrees that, during the twelve (12) month period following the Separation Date, Employee will not, without prior written consent of the Company, directly or indirectly, engage in, sell or otherwise provide Competitive Services within the Restricted Territory in a capacity that is the same as or substantially similar to the capacity in which he or she was engaged by Company, whether on his or her behalf or as a Principal or Representative of any other Person; provided , however , that the provisions of this Agreement shall not be deemed to prohibit the ownership by Employee of not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended.

(d)     Enforcement of Restrictive Covenants.

(i) Rights and Remedies Upon Breach. In the event Employee breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the right and remedy to enjoin Employee, preliminarily and permanently, from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court or tribunal of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. Such right and remedy shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity. Without limiting the foregoing sentence, in the event Employee breaches any of the provisions of the Restrictive Covenants, (i) Employee shall cease to have any rights to payments and benefits under the Plan, (ii) all payments and benefits thereunder to Employee shall cease, and (iii) Employee shall repay to the Company any payments or benefits under the Plan that had already been provided to Employee prior to such breach, including both cash payments and the value of benefits continuation (calculated pursuant to Section 2.01 of the Plan).

(ii) Severability of Covenants. Employee acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. The covenants set forth in Part II of this Agreement shall be considered and construed as separate and independent covenants. Should any part or provision of any covenant be held invalid, void or unenforceable, such invalidity, voidness or unenforceability shall not render invalid, void or unenforceable any other part or provision of this Agreement.

(iii) Reformation. If any portion of any of the Restrictive Covenants is found to be invalid or unenforceable because its duration, the territory, the definition of activities or the definition of information covered is considered to be invalid or unreasonable in scope, the invalid or unreasonable term shall be redefined, or a new enforceable term provided, such that the intent of the parties in agreeing to the provisions of Part II of this Agreement will not be impaired and the provision in question shall be enforceable to the fullest extent of the applicable laws.


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(e)      Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina, without regard to principles of conflicts of laws. Employee hereby irrevocably consents to the exclusive jurisdiction of the state and federal courts of the State of South Carolina, which shall have jurisdiction to hear and determine any claim, cause of action or controversy arising from or relating to this Agreement.

Part III         Non-Disparagement.

Employee hereby agrees that he or she shall not disparage, criticize or otherwise publish or communicate any statements or opinions that are derogatory to or could otherwise harm the business or reputation of the Company or any Franchisee, subject to Part IV below.

Part IV         Exclusions.

Neither the Release of Claims and Covenant Not to Sue in Part I, the Restrictions in Part II, the Non-Disparagement obligation in Part III, nor anything else in this Agreement limits Employee’s rights to (a) initiate communications directly with, cooperate with, provide relevant information or testimony to, respond to any inquiry from, or otherwise assist in an investigation by the Securities and Exchange Commission, the Equal Employment Opportunity Commission (“EEOC”), or any other governmental or regulatory body or official(s) regarding a possible violation of any applicable law, rule or regulation, or (b) file a charge with the EEOC or state fair employment practices agency. Further, nothing in this Agreement requires Employee to notify the Company of any activity protected by this paragraph.
Employee acknowledges and agrees, however, that, to the fullest extent permitted by law, Employee is waiving and releasing any claim or right to recover from the Company any monetary damages or any other form of personal relief based on any claim, charge, complaint or action against the Company covered by the Release of Claims set forth above. Nothing in this Agreement is intended to or shall prevent, impede or interfere with Employee’s non-waivable right to receive and fully retain a monetary award from a government-administered whistleblower award program for providing information directly to a government agency.

Defend Trade Secrets Act: Federal law provides certain protections to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances. Specifically, federal law provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret where the disclosure is made (a) in confidence to a federal, state, or local government official, either directly or indirectly, or to any attorney; or (b) solely for the purpose of reporting or investigating a suspected violation of law; or (c) where the disclosure is made in a complaint or other document filed in lawsuit or other proceeding, if such filing is made under seal. Federal law also provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (a) files any document containing a trade secret under seal; and (b) does not disclose the trade secret, except pursuant to a court order. Nothing in this Agreement is intended to limit any rights under such federal law.

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Part V         Return of Property.

Employee agrees to return immediately and warrants that he or she has returned before executing or receiving payment pursuant to this Agreement, all documents, materials and other things in his or her possession or control relating to the Company, or that have been in his or her possession or control at the time of or since the termination of his or her employment with the Company, without retaining any copies, summaries, abstracts, excerpts, portions, replicas or other representations thereof. Employee likewise represents and warrants that the Company has returned all of Employee’s personal property and that any such property is no longer in possession of the Company.

This Agreement has been executed voluntarily by the parties. The parties acknowledge that they have read this Agreement carefully, that they have had a full and reasonable opportunity to consider this Agreement, and that they have not been pressured or in any way coerced, threatened or intimidated into its execution.


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SIGNATURE BY EMPLOYEE

I acknowledge that I have been advised to consult with an attorney prior to signing this Agreement. I further acknowledge that the consideration for signing this Agreement is a benefit to which I otherwise would not have been entitled had I not signed this Agreement.

I have read this entire document and I understand and agree to each of its terms. SPECIFICALLY, I AGREE THAT BY SIGNING THIS DOCUMENT, I AM WAIVING MY RIGHTS TO SUE THE COMPANY AS SET FORTH ABOVE IN PART I. I also understand that this is the entire Agreement between the Company and me regarding severance pay and the termination of my employment and that no other agreements or promises about those matters, written or oral will be enforceable.


_________________________________        ____________________________
(Signature of Employee)                 (Date Signed)



_________________________________        ____________________________
(Print Employee Name)                 (Witness)




ACCEPTANCE BY THE COMPANY


The Company hereby enters into and accepts this Agreement as set forth above.



DENNY'S CORPORATION
By:                     
Name:
                    
Title:                     





8

EXECUTION VERSION
CID #: 000016249

FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT

THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this “ Amendment ”), dated as of June 26, 2018, is by and among DENNY’S, INC. , a Florida corporation (“ Denny’s ” or the “ Borrower ”), DENNY’S CORPORATION , a Delaware corporation (“ Parent ”), each of those Subsidiaries of Parent party hereto (Parent and such Subsidiaries, each a “ Guarantor ” and collectively, the “ Guarantors ”), WELLS FARGO BANK, NATIONAL ASSOCIATION , as administrative agent on behalf of the Lenders under the Credit Agreement (as hereinafter defined) (in such capacity, the “ Administrative Agent ”), and the Lenders party hereto.


W I T N E S S E T H

WHEREAS , the Borrower, the Parent, the other Guarantors, certain banks and financial institutions from time to time party thereto (the “ Lenders ”) and the Administrative Agent are parties to that certain Third Amended and Restated Credit Agreement dated as of October 26, 2017 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the “ Credit Agreement ”; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement);

WHEREAS , the Loan Parties have requested that the Required Lenders make certain amendments to the Credit Agreement as set forth herein; and

WHEREAS , the Required Lenders have agreed to amend the Credit Agreement, in each case, subject to the terms and conditions set forth herein.

NOW, THEREFORE , in consideration of the agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:


ARTICLE I
AMENDMENTS TO CREDIT AGREEMENT

1.1      Amendment to “Consolidated EBITDA” . Clause (b)(iv) of the definition of “Consolidated EBITDA” in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

(iv) other non‑cash items (including, without limitation, stock compensation benefits, deferred compensation adjustments, restructuring and exit cost reversals, and other non‑operating income) increasing Consolidated Net Income, in each case of or by Parent and its Subsidiaries for such Measurement Period (excluding any non-cash items increasing Consolidated Net Income pursuant to FASB ASC 606 relating to the recognition of franchise fee revenue);

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1.2      Amendment to Section 1.03(b) . Section 1.03(b) of the Credit Agreement is hereby amended by inserting the following new sentence at the end thereof:

Notwithstanding the foregoing, it is acknowledged and agreed that commencing January 1, 2018, the financial statements and other documents required under this Agreement shall be prepared and the financial ratios and other requirements under the Loan Documents shall be calculated after giving effect to FASB ASC 606 relating to the recognition of franchise fee revenue.

1.3      Amendment to Section 7.04(e) . Section 7.04(e) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

(e)    any Loan Party may sell, transfer, sell a franchise in or otherwise dispose of (i) restaurants or property (including real property, improvements, fixtures and equipment) relating to current or former restaurants of such person (such restaurants and property are collectively referred to as “ Restaurant Businesses ”) with an aggregate Fair Market Value of all assets disposed of pursuant to this clause (e)(i) not to exceed $25,000,000 in any fiscal year and (ii) the Restaurant Business located at (x) 5751 Sunset Blvd., Los Angeles, California 90028, (y) 3600 Biscayne Blvd., Miami, Florida 33137 and (z) 221 NE 36th Street, Miami, Florida 33137, in each case, for consideration equal to the Fair Market Value of the applicable Restaurant Businesses sold, transferred or otherwise disposed of;

1.4     Amendment to Exhibit C [Form of Compliance Certificate] . Item (A)(a)(5) on Schedule 2 to Exhibit C [Form of Compliance Certificate] to the Credit Agreement is hereby amended and restated in its entirety to read as follows:

5.    other non-cash charges (including, without limitation,
stock compensation expenses, deferred compensation
adjustments, restructuring and exit costs, and
other non-operating expenses) increasing
Consolidated Net Income (excluding any non-cash
items increasing Consolidated Net Income pursuant
to FASB ASC 606 relating to the recognition of franchise
fee revenue):                     $_________    



ARTICLE II
CONDITIONS

2.1      Closing Conditions . This Amendment shall be deemed effective as of the date set forth above upon receipt by the Administrative Agent of a copy of this Amendment duly executed by each of the Loan Parties, the Administrative Agent and the Required Lenders.


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ARTICLE III
MISCELLANEOUS

3.1      Amended Terms . On and after the date hereof, all references to the Credit Agreement in each of the Loan Documents shall hereafter mean the Credit Agreement as amended by this Amendment. Except as specifically amended hereby or otherwise agreed, the Credit Agreement is hereby ratified and confirmed and shall remain in full force and effect according to its terms.

3.2      Representations and Warranties of the Loan Parties . Each of the Loan Parties represents and warrants as follows:

(a)    Each Loan Party has all requisite power and authority and has taken all necessary corporate and other action to authorize the execution, delivery and performance of this Amendment in accordance with its terms.

(b)    This Amendment has been duly executed and delivered by the duly authorized officers of each Loan Party that is a party hereto and constitutes a legal, valid and binding obligation of each Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms.

(c)    No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required for the execution, delivery, performance, validity or enforceability of this Amendment.

(d)    The representations and warranties set forth in Article V of the Credit Agreement and in any other Loan Document are true and correct in all material respects as of the date hereof (except for (i) those which expressly relate to an earlier date, which shall be true and correct in all material respects as of such earlier date, (ii) those that are qualified by materiality or reference to Material Adverse Effect, which are true and correct in all respects and (iii) those contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent financial statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Credit Agreement).

(e)    No event has occurred and is continuing which constitutes a Default or an Event of Default.

(f)    The Collateral Documents continue to create a valid security interest in, and Lien upon, the Collateral, in favor of the Administrative Agent, for the benefit of the Lenders, which security interests and Liens are perfected in accordance with the terms of the Collateral Documents and prior to all Liens other than Permitted Liens.

(g)    Each Guarantor affirms all of its obligations under the Loan Documents and agrees that this Amendment and all documents executed in connection herewith do not operate to reduce or discharge its obligations under the Credit Agreement or the other Loan Documents.

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(h)    The Obligations of the Loan Parties are not reduced or modified by this Amendment and are not subject to any offsets, defenses or counterclaims.

3.3      Reaffirmation of Obligations . Each Loan Party hereby ratifies the Credit Agreement and each other Loan Document to which it is a party and acknowledges and reaffirms (a) that it is bound by all terms of the Credit Agreement and each other Loan Document to which it is a party applicable to it and (b) that it is responsible for the observance and full performance of its respective obligations under the Loan Documents.

3.4      Loan Document . This Amendment shall constitute a Loan Document under the terms of the Credit Agreement.

3.5      Expenses . The Borrower agrees to pay all reasonable costs and expenses of Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including without limitation the reasonable fees and expenses of the Administrative Agent’s legal counsel.

3.6     Entirety . This Amendment and the other Loan Documents embody the entire agreement among the parties hereto and supersede all prior agreements and understandings, oral or written, if any, relating to the subject matter hereof.

3.7      Counterparts; Telecopy . This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart to this Amendment by telecopy or other electronic means shall be as delivery of a manually executed counterpart of this Amendment.

3.8     GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

3.9     Successors and Assigns . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns.

3.10     Consent to Jurisdiction; Service of Process; Waiver of Jury Trial . The jurisdiction, services of process and waiver of jury trial provisions set forth in Sections 10.14 and 10.15 of the Credit Agreement are hereby incorporated by reference, mutatis mutandis .


[Signature pages to follow]



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IN WITNESS WHEREOF the parties hereto have caused this Amendment to be duly executed on the date first above written.

BORROWER:    DENNY’S, INC.,
a Florida corporation
By: /s/ Ross B. Nell     
Name: Ross Nell
Title: Vice President, Tax and Treasurer
GUARANTORS:    DENNY’S CORPORATION,
a Delaware corporation
By: /s/ Ross B. Nell     
Name: Ross Nell
Title: Vice President, Tax and Treasurer
DENNY’S REALTY, LLC,
a Delaware limited liability company

By:
DFO, LLC, its Sole Member
By: Denny’s Inc., its Sole Member

By: /s/ Ross B. Nell
Name: Ross Nell
Title: Vice President, Tax and
Treasurer


DFO, LLC,
a Delaware limited liability company
By:
Denny’s Inc., its Sole Member

By: /s/ Ross B. Nell
Name: Ross Nell
Title: Vice President, Tax and Treasurer

DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT




AGENT AND LENDERS:              WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Administrative Agent,
Issuing Lender and Lender

By: /s/ Darcy McLaren
Name:     Darcy McLaren
Title: Director


DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT




REGIONS BANK
By: /s/ Kelly Nyquist     
Name: Kelly Nyquist
Title: Director

DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT




CITIZENS BANK, N.A.

By: /s/ Eugene Chang     
Name: Eugene Chang
Title: Senior Vice President


DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT




CADENCE BANK, N.A.
By: /s/ Vance Waldron     
Name: Vance Waldron

Title: Vice President


DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT



FIFTH THIRD BANK
By: /s/ Greg McGinley     
Name: Greg McGinley
Title: Principal, Corporate Banking


DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT




BANK OF AMERICA, N.A.
By: /s/ Robert J. Beckley     
Name: Robert J. Beckley
Title: Senior Vice President


DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT



BANK OF THE WEST
By: /s/ Bruce Young     
Name: Bruce Young
Title: Managing Director


DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT




BRANCH BANKING & TRUST COMPANY
By: /s/ Kelly Attayek
Name: Kelly Attayek
Title: Assistant Vice President


DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT




MUFG UNION BANK, N.A.
By: /s/ Victor Pierzchalski     
Name: Victor Pierzchalski
Title: Authorized Signatory



DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT




SYNOVUS BANK
By: /s/ Michael Sawicki     
Name: Michael Sawicki
Title: Director, Corporate Banking




DENNY’S, INC.
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT


Exhibit 31.1
 
 
CERTIFICATION
 
 
I, John C. Miller, certify that:
 
1. I have reviewed this report on Form 10-Q of Denny’s Corporation;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
 
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
  
 
 
 
 
Date: October 30, 2018
By:
/s/ John C. Miller
 
 
 
John C. Miller
 
 
 
President and Chief Executive Officer
 
 
 
 
 





Exhibit 31.2
 
 
CERTIFICATION
 
 
I, F. Mark Wolfinger, certify that:
 
1. I have reviewed this report on Form 10-Q of Denny’s Corporation;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
 
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
 
Date: October 30, 2018
By:
/s/ F. Mark Wolfinger
 
 
 
F. Mark Wolfinger
 
 
 
Executive Vice President,
 
 
 
Chief Administrative Officer and
 
 
 
Chief Financial Officer
 





Exhibit 32.1
 
 
CERTIFICATION
 
 
John C. Miller
President and Chief Executive Officer of Denny’s Corporation
 
and
 
F. Mark Wolfinger
Executive Vice President, Chief Administrative Officer and Chief Financial Officer
 
 
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
In connection with the Quarterly Report of Denny’s Corporation (the “Company”) on Form 10-Q for the period ended September 26, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John C. Miller, President and Chief Executive Officer of the Company, and I, F. Mark Wolfinger, Executive Vice President, Chief Administrative Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: October 30, 2018
By:
/s/ John C. Miller
 
 
 
John C. Miller
 
 
 
President and Chief Executive Officer
 
 
Date: October 30, 2018
By:
/s/ F. Mark Wolfinger
 
 
 
F. Mark Wolfinger
 
 
 
Executive Vice President,
 
 
 
Chief Administrative Officer and
 
 
 
Chief Financial Officer
 
 
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Denny’s Corporation and will be retained by Denny’s Corporation and furnished to the Securities and Exchange Commission or its staff upon request.