UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the Fiscal Year Ended December 28, 2011

Commission file number 0-18051

DENNY'S CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	13-3487402
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)
203 East Main Street, Spartanburg, South Carolina	29319-9966
(Address of principal executive offices)	(Zip Code)

(864) 597-8000

(Registrant’s telephone number, including area code)

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

Title of each class	Name of each exchange on which registered
$.01 Par Value, Common Stock	The Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ¨    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  ¨    No  þ

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   þ

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

Large accelerated filer	o	Accelerated filer	þ	Non-accelerated filer	o	Smaller reporting company	o
				(Do not check if a smaller reporting company)

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

Yes  ¨    No  þ

The aggregate market value of the voting common stock held by non-affiliates of the registrant was approximately $330.6 million as of June 29, 2011, the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sales price of registrant’s common stock on that date of $3.87 per share and, for purposes of this computation only, the assumption that all of the registrant’s directors, executive officers and beneficial owners of 10% or more of the registrant’s common stock are affiliates.

As of March 5, 2012, 96,104,464 shares of the registrant’s common stock, $.01 par value per share, were outstanding.

Documents incorporated by reference:

Portions of the registrant’s definitive Proxy Statement for the 2012 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

		Page
PART I
	Item 1.      Business	1
	Item 1A.   Risk Factors	5
	Item 1B.   Unresolved Staff Comments	9
	Item 2.      Properties	10
	Item 3.      Legal Proceedings	11
	Item 4.      Mine Safety Disclosures	11
PART II
	Item 5.      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
	Item 6.      Selected Financial Data	14
	Item 7.      Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 7A.   Quantitative and Qualitative Disclosures About Market Risk	26
	Item 8.      Financial Statements and Supplementary Data	26
	Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	26
	Item 9A.   Controls and Procedures	27
	Item 9B.    Other Information	29
PART III
	Item 10.    Directors, Executive Officers and Corporate Governance	29
	Item 11.    Executive Compensation	29
	Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	29
	Item 13.    Certain Relationships and Related Transactions, and Director Independence	29
	Item 14.    Principal Accounting Fees and Services	29
PART IV
	Item 15.    Exhibits and Financial Statement Schedules	29
Index to Consolidated Financial Statements		F-1
Signatures

FORWARD-LOOKING STATEMENTS

The forward-looking statements included in the “Business,” “Risk Factors,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk” sections and elsewhere herein, which reflect our best judgment based on factors currently known, involve risks and uncertainties. Words such as “expects,” “anticipates,” “believes,” “intends,” “plans,”  “hopes,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements speak only as to the date thereof. Except as may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors including, but not limited to, the factors discussed in such sections and, in particular, those set forth in the cautionary statements contained in “Risk Factors.” The forward-looking information we have provided in this Form 10-K pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors.

PART I

Item 1.     Business

Description of Business

Denny’s Corporation (Denny’s) is one of America’s largest family-style restaurant chains. Denny’s, through its wholly-owned subsidiary, Denny’s, Inc., owns and operates the Denny’s restaurant brand. At December 28, 2011, the Denny’s brand consisted of 1,685 restaurants, 1,479 (88%) of which were franchised/licensed restaurants and 206 (12%) of which were company-owned and operated.

Open 24/7 in most locations, Denny’s restaurants have been providing their guests with quality food, good value and friendly service in a pleasant dining atmosphere for over 50 years. Denny’s is best known for its breakfast fare served around the clock. The Original Grand Slam®, introduced in 1977, remains one of our most popular menu items. Denny’s has increased its popularity as a lunch and dinner destination by offering something for everyone in a “come as you are” atmosphere including craveable burgers, sandwiches, salads and entrees. In addition to these products with our "always open" appeal, sharable appetizers and desserts cater to the late-night crowd.

References to "Denny's," the "Company," "we," "us," and "our" in this Form 10-K are references to Denny's Corporation and its subsidiaries.

Business Strategy

During 2011, we focused on the following initiatives, which we believe are important steps to making the Denny’s brand the leading family-style restaurant in the nation:

Domestic Development

We continued our Franchise Growth Initiative ("FGI") to increase franchise restaurant development through the sale of certain geographic clusters of company restaurants to both current and new franchisees. As of December 28, 2011, the total number of company restaurants sold since our FGI program began in early 2007 is 344. Fulfilling the unit growth expectations of this program, certain franchisees that have purchased company restaurants also signed development agreements to open additional restaurants. In addition to these franchise development agreements, we have been negotiating development agreements outside of our FGI program.

Through our various development efforts, we have negotiated development agreements for 217 new domestic restaurants, 108 of which have opened. The majority of the units in the pipeline are expected to open over the next five years. While the majority of the units scheduled under these agreements are on track, from time to time some of our franchisees' ability to grow and meet their development commitments is hampered by the economy and the difficult lending environment.

During 2010, Denny's was selected as the full-service restaurant operator of choice for Pilot Travel Centers LLC ("Pilot"). Also during the prior year, Pilot merged with Flying J Travel Centers ("Flying J") and is now named Pilot Flying J. We began converting former Flying J restaurant operations to Denny’s in July 2010 and, as of December 28, 2011, had converted 123 sites, 23 of which now operate as company restaurants and 100 of which now operate as franchise restaurants, thus completing the Flying J conversions.

During 2011, we opened five licensed locations on university campuses, which operate under either the Denny’s Fresh Express® or Denny’s AllNighter® names.

International Development

In addition to the development agreements signed for domestic restaurants, we have signed development agreements for 39 new international restaurants, ten of which have opened.  During 2011, we opened five international franchised locations in Honduras, Costa Rica, New Zealand and Canada, some of which were under development agreements. We believe that there is a significant opportunity for development of the Denny's brand in several international growth markets.

During 2012, we expect to open 45 to 50 restaurants in domestic and international markets.

Ongoing Transition to a Franchise Focused Business Model

As a result of the development efforts described above, over the past six years we have transitioned from a portfolio mix of 66% franchised and 34% company-operated to a portfolio mix of 88% franchised and 12% company-operated. Our targeted portfolio mix is 90% franchised and 10% company-operated. We anticipate achieving this goal through a combination of new franchise unit growth and the sale of restaurants to franchisees by the end of fiscal 2012. We expect that the future growth of the brand will come primarily from the development of franchise restaurants. The following table summarizes the changes in the number of company-owned and franchised and licensed restaurants during the past five years:

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	2011			2010			2009			2008			2007
Company-owned restaurants, beginning of period		232			233			315			394			521
Units opened		8			24			1			3			5
Units relocated		—			1			—			—			—
Units acquired from franchisees		—			—			—			—			1
Units sold to franchisees		(30	)		(24	)		(81	)		(79	)		(130	)
Units closed (including units relocated)		(4	)		(2	)		(2	)		(3	)		(3	)
End of period		206			232			233			315			394
Franchised and licensed restaurants, beginning of period		1,426			1,318			1,226			1,152			1,024
Units opened		53			112			39			31			18
Units relocated		1			4			3			1			4
Units acquired by Company		—			—			—			—			(1	)
Units purchased from Company		30			24			81			79			130
Units closed (including units relocated)		(31	)		(32	)		(31	)		(37	)		(23	)
End of period		1,479			1,426			1,318			1,226			1,152
Total restaurants, end of period		1,685			1,658			1,551			1,541			1,546

The table below sets forth information regarding the distribution of single-store and multi-store franchisees as of December 28, 2011:

	Franchisees		Percentage of Franchisees			Restaurants		Percentage of Restaurants
One		93		35.1	%		93		6.3	%
Two to five		109		41.1	%		327		22.1	%
Six to ten		32		12.1	%		244		16.5	%
Eleven to fifteen		13		4.9	%		176		11.9	%
Sixteen to thirty		9		3.4	%		204		13.8	%
Thirty-one and over		9		3.4	%		435		29.4	%
Total		265		100.0	%		1,479		100.0	%

Menu Offerings

We are leveraging our heritage as a classic American diner with our “America’s Diner is Always Open" branding which provides the framework for our three primary marketing strategies: (1) delivering everyday affordability, primarily through our $2 $4 $6 $8 Value Menu®, (2) creating compelling limited-time-only products, and (3) driving sales beyond breakfast.  The Denny’s menu offers a large selection of high-quality, moderately priced products designed to appeal to all types of guests. We offer a wide variety of items for breakfast, lunch, and dinner, in addition to appetizers, desserts and beverages. Our Fit Fare® menu helps our guests identify items best suited to their dietary needs. Most Denny’s restaurants offer special items for children and seniors at reduced prices. Some restaurants cater to local tastes by offering regional items that complement the core menu. Our Product Development department works closely with our franchisees to develop new menu ideas which are thoroughly evaluated in our test kitchen with feedback from our guests and operators prior to being introduced into our restaurants. We continually strive to improve existing menu items and to add new menu items to give our guests additional reasons to return to our restaurants.

Financial

During the first quarter of 2011, we amended our credit facility principally to take advantage of lower interest rates available in the senior secured debt market. Interest on our credit facility, as amended, is payable at per annum rates equal to LIBOR plus 375 basis points, with a LIBOR floor of 1.50% for the term loan and no LIBOR floor for the revolver, compared with an interest rate of LIBOR plus 475 basis points and a LIBOR floor of 1.75% for both the term loan and the revolver prior to the re-pricing. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Credit Facility."

Also during 2011, we completed a 3.0 million share stock repurchase program that we began in November 2010. In April 2011, our Board of Directors approved an additional share repurchase program authorizing us to repurchase up to 6.0 million shares of our Common Stock. Under the program, we could, from time to time, purchase shares in the open market (including through pre-arranged stock trading plans in accordance with guidelines specified in Rule 10b5-1 under the Securities Exchange Act of 1934) or in privately negotiated transactions, subject to market and business conditions. As of December 28, 2011, we had repurchased 3.7 million shares of Common Stock for $14.0 million under this 6.0 million share repurchase program. For more information see "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Dividends and Share Repurchases."

Restaurant Operations

We believe that the superior execution of basic restaurant operations in each Denny’s restaurant, whether it is company-owned or franchised, is critical to our success. To meet and exceed our guests’ expectations, we require both our company-owned and our franchised restaurants to maintain the same strict brand standards. These standards relate to the preparation and efficient serving of quality food and the maintenance, repair and cleanliness of restaurants.

We devote significant effort to ensuring all restaurants offer quality food served by friendly, knowledgeable and attentive employees in a clean and well-maintained restaurant. We seek to ensure that our company-owned restaurants meet our high standards through a network of Directors of Company Operations, Company District Managers and restaurant level managers, all of whom spend the majority of their time in the restaurants. A network of Regional Directors of Franchise Operations and Franchise Business Leaders provide oversight of our franchised restaurants to ensure compliance with brand standards, promote operational excellence, and provide general support to our franchisees. 

2

A principal feature of Denny’s restaurant operations is the consistent focus on improving operations at the restaurant level. Restaurant managers are hands-on and versatile in their supervisory activities. Many of our restaurant management personnel began as hourly associates in the restaurants and, therefore, know how to perform restaurant functions and are able to train by example.

Denny’s maintains professional training programs for hourly associates and restaurant management. Hourly employee training programs (including eLearning) are position-specific and focus on skills and tasks necessary to successfully fulfill the responsibilities assigned to them, while continually enhancing guest satisfaction. Denny's Manager In Training (“MIT”) program is conducted at Approved Training Restaurants. The MIT program is required for all company new hires and those promoted internally, and is available for use by Denny's franchisees to train their managers to Denny's brand standards. The mission of the MIT program is to provide managers with the knowledge and leadership skills needed to successfully operate a Denny's restaurant.

Franchising and Development

Our criteria to become a Denny’s franchisee include minimum liquidity and net worth requirements and appropriate operational experience. We believe that Denny’s is an attractive financial proposition for current and potential franchisees and that our fee structure is competitive with other full-service brands. The initial fee for a single twenty-year Denny’s franchise agreement is $40,000 and the royalty payment is up to 4% of gross sales. Additionally, our franchisees are required to contribute up to 4% of gross sales for advertising and may make additional advertising contributions as part of a local marketing co-operative.

Site Selection

The success of any restaurant is influenced significantly by its location. Our development team works closely with franchisees and real estate brokers to identify sites which meet specific standards. Sites are evaluated on the basis of a variety of factors, including but not limited to:

• demographics;

• traffic patterns;

• visibility;

• building constraints;

• competition;

• environmental restrictions; and

• proximity to high-traffic consumer activities.

Research and Innovation

Denny’s is a consumer-driven brand with particular focus on hospitality, menu choices, marketing strategy, and overall guest experience. We rely on consumer insights obtained through secondary and primary qualitative and quantitative studies. These insights form the strategic foundation for menu architecture, pricing, promotion and advertising. The added-value of these insights and strategic understandings also assist our Restaurant Operations and Information Technology staffs in the evaluation and development of new restaurant processes and upgraded restaurant equipment that may enhance our speed of service, food quality and order accuracy.

Through this consumer-focused effort, we are successfully innovating our brand and concept, striving for continued relevance and brand differentiation. This allows us the opportunity to protect margins, gain market share and efficiently maximize our research investment.

Marketing and Advertising

Denny’s marketing team employs integrated marketing and advertising strategies that promote the Denny’s brand. Communications strategy, media, advertising, menu management, product innovation and development, consumer insights, public relations, field marketing and national promotions all fall under the marketing umbrella.

Our marketing campaigns, including broadcast advertising, focus on amplifying Denny's brand strengths with what consumers want – it’s about choice with made-to-order variety and an emphasis on breakfast at an affordable value offered all day, every day. On a national level and through local co-operatives, the campaigns reach their consumer targets through network, cable and local television, radio, online, digital, social, outdoor and print media.

Product Development

Denny’s Product Development team works closely with consumer insights to create menu choices that are relevant to our consumers and align with current menu trends. Input and ideas from our franchisees, vendors and operators can also be integrated into this process. Before a new menu item can be brought to fruition, it is rigorously tested against standards of culinary discipline, food science and technology, nutritional analysis and operational execution. This testing process ensures that new menu items are not only appealing and marketable, but can be prepared and delivered with excellence in our restaurants.

Product Sources and Availability

Our purchasing department administers programs for the procurement of food and non-food products. Our franchisees also purchase food and non-food products directly from the vendors under these programs. Our centralized purchasing program is designed to ensure uniform product quality as well as to minimize food, beverage and supply costs. Our size provides significant purchasing power, which often enables us to obtain products at favorable prices from nationally recognized manufacturers.

While nearly all products are contracted for by our purchasing department, the majority are purchased and distributed through Meadowbrook Meat Company (MBM), under a long-term distribution contract. MBM distributes restaurant products and supplies to the Denny’s system from approximately 150 vendors, representing approximately 89% of our restaurant product and supply purchases. We believe that satisfactory alternative sources of supply are generally available for all the items regularly used by our restaurants. We have not experienced any material shortages of food, equipment, or other products which are necessary to our restaurant operations.

3

Brand Protection & Quality

Denny’s will only serve our guests food that is safe and wholesome and that meets our quality standards. Our systems, from the supply chain through our restaurants, are based on Hazard Analysis and Critical Control Points (HACCP), whereby we prevent, eliminate or reduce hazards to a safe level to protect the health of the employees and guests. To ensure this basic expectation to our guests, Denny’s also has risk-based systems in place to validate only approved vendors and distributors which meet and follow our product specifications and food handling procedures. Vendors, distributors and restaurants employees follow regulatory requirements (federal, state & local), industry “best practices” and Denny’s Brand Standards.

We use multiple approaches including third-party unannounced restaurant inspections (utilizing Denny’s Brand Protection Reviews), health department reviews and employee/manager training in their respective roles. If operational brand standard expectations are not met, a remediation process is immediately initiated. Our HACCP system uses nationally recognized food safety training courses and American National Standards Institute accredited certification programs.

All Denny’s restaurants are required to have a person certified in food protection on duty for all hours of operation. Our Food Safety/HACCP program has been recognized nationally by regulatory departments, industry, and our peers as one of the best. We have established a strong food safety culture within Denny’s. We continue to be leading edge advocates for the advancement of food safety within the industry’s organizations, such as National Council of Chain Restaurants (NCCR), National Restaurant Association (NRA) and Quality Assurance Executive Study Groups.

Seasonality

Restaurant sales are generally higher in the second and third calendar quarters (April through September) than in the first and fourth calendar quarters (October through March). Additionally, severe weather, storms and similar conditions may impact sales volumes seasonally in some operating regions.

Trademarks and Service Marks

Through our wholly-owned subsidiaries, we have certain trademarks and service marks registered with the United States Patent and Trademark Office and in international jurisdictions, including "Denny's®", "Grand Slam®", "$2 $4 $6 $8 Value Menu®" and "Fit Fare®". During 2011, as part of our international development strategy, we secured ownership of the registered rights in the Denny's name and logo in China. We consider our trademarks and service marks important to the identification of our restaurants and believe they are of material importance to the conduct of our business. Domestic trademark and service mark registrations are renewable at various intervals from 10 to 20 years. International trademark and service mark registrations have various durations from 5 to 20 years. We generally intend to renew trademarks and service marks which come up for renewal. We own or have rights to all trademarks we believe are material to our restaurant operations in the United States and other jurisdictions where we do business. In addition, we have registered various domain names on the internet that incorporate certain of our trademarks and service marks, and believe these domain name registrations are an integral part of our identity. From time to time, we may resort to legal measures to defend and protect the use of our intellectual property.

Competition

The restaurant industry is highly competitive. Restaurants compete on the basis of name recognition and advertising; the price, quality, variety and perceived value of their food offerings; the quality and speed of their guest service; and the convenience and attractiveness of their facilities.

Denny’s direct competition in the family-style category includes a collection of national and regional chains, as well as thousands of independent operators. We also compete with quick service restaurants as they attempt to upgrade their menus with premium sandwiches, entree salads, new breakfast offerings and extended hours.

We believe that Denny’s has a number of competitive strengths, including strong brand name recognition, well-located restaurants and market penetration. We benefit from economies of scale in a variety of areas, including advertising, purchasing and distribution. Additionally, we believe that Denny’s has competitive strengths in the value, variety and quality of our food products, and in the quality and training of our employees. See “Risk Factors” for certain additional factors relating to our competition in the restaurant industry.

Economic, Market and Other Conditions

The restaurant industry is affected by many factors, including changes in national, regional and local economic conditions affecting consumer spending, the political environment (including acts of war and terrorism), changes in customer travel patterns, changes in socio-demographic characteristics of areas where restaurants are located, changes in consumer tastes and preferences, increases in the number of restaurants, unfavorable trends affecting restaurant operations, such as rising wage rates, healthcare costs, utilities expenses and unfavorable weather. See "Risk Factors" for additional information.

Government Regulations

We and our franchisees are subject to local, state, federal and international laws and regulations governing various aspects of the restaurant business.

The operation of our franchise system is also subject to regulations enacted by a number of states and rules promulgated by the Federal Trade Commission. We believe we are in material compliance with applicable laws and regulations, but we cannot predict the effect on operations of the enactment of additional regulations in the future.

We are also subject to federal and state laws, including the Fair Labor Standards Act, governing matters such as minimum wage, tip reporting, overtime, exempt status classification and other working conditions. A substantial number of our employees are paid the minimum wage. Accordingly, increases in the minimum wage or decreases in the allowable tip credit (which reduces wages deemed to be paid to tipped employees in certain states) increase our labor costs. This is especially true for our operations in California, where there is no tip credit. Employers must pay the higher of the federal or state minimum wage. We have attempted to offset increases in the minimum wage through pricing and various cost control efforts; however, there can be no assurance that we will be successful in these efforts in the future.

4

Environmental Matters

Federal, state and local environmental laws and regulations have not historically had a material impact on our operations; however, we cannot predict the effect of possible future environmental legislation or regulations on our operations.

Executive Officers of the Registrant

The following table sets forth information with respect to each executive officer of Denny’s:

Name	Age	Current Principal Occupation or Employment and Five-Year Employment History
Frances L. Allen	49	Executive Vice President, Global Brand Strategy and Chief Marketing Officer of Denny's (June, 2011-present); Executive Vice President and Chief Marketing Officer of Denny's (July, 2010-June, 2011); Chief Marketing Officer of Dunkin' Donuts, U.S. (2007-2009); Vice President, Marketing of Sony Ericsson Mobile Communication (2004-2007).
John C. Miller	56	Chief Executive Officer and President of Denny’s (February, 2011-present); Chief Executive Officer and President of Taco Bueno Restaurants, Inc. (an operator and franchisor of quick service Mexican eateries) (2005 - February, 2011);  President of Romano's Macaroni Grill (1997-2004).
Robert Rodriguez	59	Executive Vice President and Chief Operating Officer of Denny's (September, 2010-present); President and Chief Operating Officer of Pick Up Stix (a multi-divisional franchise company in the Asian quick casual segment) (2008-2010); President of Dunkin' Donuts, U.S. (2004-2008).
F. Mark Wolfinger	56	Executive Vice President and Chief Administrative Officer of Denny’s (April, 2008-present); Executive Vice President, Growth Initiatives of Denny's (October, 2006-April, 2008); Chief Financial Officer of Denny’s (2005-present); Senior Vice President of Denny's (2005-October, 2006); Executive Vice President and Chief Financial Officer of Danka Business Systems (a document imaging company) (1998-2005).

Employees

At December 28, 2011, we had approximately 10,000 employees, none of whom are subject to collective bargaining agreements. Many of our restaurant employees work part-time, and many are paid at or slightly above minimum wage levels. As is characteristic of the restaurant industry, we experience a high level of turnover among our restaurant employees. We have experienced no significant work stoppages, and we consider relations with our employees to be satisfactory.

The staff for a typical restaurant consists of one General Manager, two or three Restaurant Managers, and approximately 45 hourly employees. In addition, we employ three Operations Vice Presidents, three Company Directors of Operations, five Franchise Regional Directors of Operations, and a team of Company District Managers and Franchise Business Leaders to guide and support the franchisees and in-restaurant teams. The duties of the Directors of Operations, District Managers, and Franchise Business Leaders include regular restaurant visits and inspections, as well as frequent interactions with our franchisees, employees and guests, which ensures the ongoing adherence to our standards of quality, service, cleanliness, value and  hospitality.

Available Information

We make available free of charge through our website at www.dennys.com (in the Corporate—Investor Relations—SEC Filings section) copies of materials that we file with, or furnish to, the Securities and Exchange Commission ("SEC"), including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.

Item 1A.     Risk Factors

We caution you that our business and operations are subject to a number of risks and uncertainties. The factors listed below could cause actual results to differ materially from our historical results and from projections in forward-looking statements contained in this Form 10-K, in our other filings with the SEC, in our news releases and in public statements made orally by our representatives.

Risks Related to Our Business

Our financial condition depends on our ability and the ability of our franchisees to operate restaurants profitably, to generate positive cash flows and to generate acceptable returns on invested capital.  The returns and profitability of our restaurants may be negatively impacted by a number of factors, including those described below.

Food service businesses are often adversely affected by changes in:

• consumer tastes;

• consumer spending habits;

• global, national, regional and local economic conditions; and

• demographic trends.

5

The performance of our individual restaurants may be adversely affected by factors such as:

• traffic patterns;

• demographic considerations; and

• the type, number and location of competing restaurants.

Multi-unit food service chains such as ours can also be adversely affected by publicity resulting from:

• poor food quality;

• food-related illness;

• injury; and

• other health concerns or operating issues.

Dependence on frequent deliveries of fresh produce and groceries subjects food service businesses to the risk that shortages or interruptions in supply caused by adverse weather or other conditions could adversely affect the availability, quality and cost of ingredients. In addition, the food service industry in general, and our results of operations and financial condition in particular, may also be adversely affected by unfavorable trends or developments such as:

• inflation;

• increased food costs;

• increased energy costs;

• labor and employee benefits costs (including increases in minimum hourly wage, employment tax rates and health care costs and workers’ compensation costs);

• regional weather conditions; and

• the availability of experienced management and hourly employees.

We are evaluating the comprehensive U.S. health care reform law that was enacted in 2010 to determine the impact on our business. We plan to comply with various parts of the law as they take effect. Although we cannot predict with certainty the financial and operational impacts the new law will have on us and our franchisees, we expect that our expenses will increase over the long term as a result of the law, particularly in 2014, and any such increases could be large enough to materially impact our results of operations.

A decline in general economic conditions could adversely affect our financial results.

Consumer spending habits, including discretionary spending on dining out at restaurants such as ours, are affected by many factors, including:

• prevailing economic conditions;

• energy costs, especially gasoline prices;

• levels of employment;

• salaries and wage rates;

• consumer confidence; and

• consumer perception of economic conditions.

Continued weakness or uncertainty of the United States economy, as a result of reactions to consumer credit availability, increasing energy prices, inflation, increasing interest rates, unemployment, war, terrorist activity or other unforeseen events could adversely affect consumer spending habits, which may result in lower restaurant sales.

The locations where we have restaurants may cease to be attractive as demographic patterns change.

The success of our owned and franchised restaurants is significantly influenced by location. Current locations may not continue to be attractive as demographic patterns change. It is possible that the neighborhood or economic conditions where our restaurants are located could decline in the future, potentially resulting in reduced sales at those locations.

A majority of Denny's restaurants are owned and operated by independent franchisees, and as a result the financial performance of franchisees can negatively impact our business.

As we are heavily franchised, our financial results are contingent upon the operational and financial success of our franchisees. We receive royalties, contributions to advertising and, in some cases, lease payments from our franchisees. We have established operational standards, guidelines and strategic plans for our franchisees; however, we have limited control over how our franchisees’ businesses are run. While we are responsible for ensuring the success of our entire chain of restaurants and for taking a longer term view with respect to system improvements, our franchisees have individual business strategies and objectives, which might conflict with our interests. Our franchisees may not be able to secure adequate financing to open or continue operating their Denny’s restaurants.  If they incur too much debt or if economic or sales trends deteriorate such that they are unable to repay existing debt, it could result in financial distress or even bankruptcy.  If a significant number of franchisees become financially distressed, it could harm our operating results through reduced royalties and lease income.

For 2011, our ten largest franchisees accounted for 34% of our franchise revenue. The balance of our franchise revenue is derived from the remaining 255 franchisees. Although the loss of revenues from the closure of any one franchise restaurant may not be material, such revenues generate margins that may exceed those generated by other restaurants or offset fixed costs which we continue to incur.

6

We have guaranteed certain franchisee lease payments and loan payments in relation to the Pilot Flying J locations. These guarantees include up to $2.0 million of lease payments and $1.7 million in loan payments. In December 2011, we announced a new loan program to support domestic growth. This program will provide up to $100 million in loans to new and existing franchisees that open new restaurants in under-penetrated markets. We will guarantee up to the lesser of $12 million or 12% of the total outstanding loans under the program. As of December 28, 2011, there were no loans outstanding under this program. Under either of the programs, if franchisees are not able to fund required payments when due, we could be required to make payments up to amounts guaranteed.

Our growth strategy depends on our ability and that of our franchisees to open new restaurants.  Delays or failures in opening new restaurants could adversely affect our planned growth.

The development of new restaurants may be adversely affected by risks such as:

• costs and availability of capital for the Company and/or franchisees;

• competition for restaurant sites;

• negotiation of favorable purchase or lease terms for restaurant sites;

• inability to obtain all required governmental approvals and permits;

• developed restaurants not achieving the expected revenue or cash flow; and

• general economic conditions.

The restaurant business is highly competitive, and if we are unable to compete effectively, our business will be adversely affected.

Each of our restaurants competes with a wide variety of restaurants ranging from national and regional restaurant chains to locally owned restaurants. We expect competition to continue to increase. The following are important aspects of competition:

• restaurant location;

• advantageous commercial real estate suitable for restaurants

• number and location of competing restaurants;

• food quality and value;

• training, courtesy and hospitality standards;

• availability of and quality of staff;

• dietary trends, including nutritional content;

• quality and speed of service;

• attractiveness and repair and maintenance of facilities; and

• the effectiveness of marketing and advertising programs.

Many factors, including those over which we have no control, affect the trading price of our stock.

Factors such as reports on the economy or the price of commodities, as well as negative or positive announcements by competitors, regardless of whether the report directly relates to our business, could have an impact of the trading price of our stock. In addition to investor expectations about our prospects, trading activity in our stock can reflect the portfolio strategies and investment allocation changes of institutional holders, as well as non-operating initiatives such as our share repurchase program. Any failure to meet market expectations whether for sales growth rates, refranchising goals, earnings per share or other metrics could cause our share price to decline.

Our reputation and business could be materially harmed as a result of the failure to protect the integrity and security of guest information or our employees' personal data.

We receive and maintain certain personal information about our guests and our employees. Our use of this information is regulated at the federal and state levels, as well as by certain third-party contracts. If our security and information systems are compromised or our business associates fail to comply with these laws and regulations and this information is obtained by unauthorized persons or used inappropriately, it could adversely affect our reputation, as well as operations, results of operations and financial condition, and could result in litigation against us or the imposition of penalties. As privacy and information security laws and regulations change, we may incur additional costs to ensure we remain in compliance.

Numerous government regulations impact our business, and our failure to comply with them could adversely affect our business.

We and our franchisees are subject to federal, state and local laws and regulations governing, among other things:

• health;

• sanitation;

• land use, sign restrictions and environmental matters;

• safety;

• the sale of alcoholic beverages; and

• hiring and employment practices, including minimum wage laws and fair labor standards.

Our restaurant operations are also subject to federal and state laws that prohibit discrimination and laws regulating the design and operation of facilities, such as the Americans with Disabilities Act of 1990. The operation of our franchisee system is also subject to regulations enacted by a number of states and rules promulgated by the Federal Trade Commission. If we or our franchisees fail to comply with these laws and regulations, we or our franchisees could be subjected to restaurant closure, fines, penalties and litigation, which may be costly and could adversely affect our results of operations and financial condition. In addition, the future enactment of additional legislation regulating the franchise relationship could adversely affect our operations.

7

Negative publicity generated by incidents at a few restaurants can adversely affect the operating results of our entire chain and the Denny’s brand.

Food safety concerns, criminal activity, alleged discrimination or other operating issues stemming from one restaurant or a limited number of restaurants do not just impact that particular restaurant or a limited number of restaurants. Rather, our entire chain of restaurants may be at risk from the negative publicity generated by an incident at a single restaurant. This negative publicity can adversely affect the operating results of our entire chain and the Denny’s brand.

If we lose the services of any of our key management personnel, our business could suffer.

Our future success significantly depends on the continued services and performance of our key management personnel. Our future performance will depend on our ability to motivate and retain these and other key officers and key team members, particularly regional and area managers and restaurant general managers. Competition for these employees is intense. The loss of the services of members of our senior management or key team members or the inability to attract additional qualified personnel as needed could harm our business.

If our internal controls are ineffective, we may not be able to accurately report our financial results or prevent fraud.

We maintain a documented system of internal controls which is reviewed and tested by the Company’s full time Internal Audit Department. The Internal Audit Department reports directly to the Audit Committee of the Board of Directors. We believe we have a well-designed system to maintain adequate internal controls on the business; however, we cannot be certain that our controls will be adequate in the future or that adequate controls will be effective in preventing errors or fraud. Any failures in the effectiveness of our internal controls could have an adverse effect on our operating results or cause us to fail to meet reporting obligations.

Risks Related to our Indebtedness

Our indebtedness could have an adverse effect on our financial condition and operations.

As of December 28, 2011, we had total indebtedness of $220.6 million, including capital leases.

We continually monitor our cash flow and liquidity needs. Although we believe that our existing cash balances, funds from operations and amounts available under our credit facility will be adequate to cover those needs, we could seek additional sources of funds, including incurring additional debt and selling selected assets, to maintain sufficient cash flow to fund our ongoing operating needs, pay interest and scheduled debt amortization and fund anticipated capital expenditures over the next twelve months. There are no material debt maturities until September 2015. If we are unable to satisfy or refinance our current debt as it comes due, we may default on our debt obligations.

For additional information concerning our indebtedness see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

Our debt instruments include restrictive covenants. These covenants may restrict or prohibit our ability to engage in or enter a variety of transactions. A breach of these covenants could cause acceleration of a significant portion of our outstanding indebtedness.

The credit agreement governing our indebtedness contains various covenants that limit, among other things, our ability to:

• incur additional indebtedness;

• pay dividends, purchase shares of Common Stock or make distributions or certain other restricted payments;

• make certain investments;

• create dividend or other payment restrictions affecting restricted subsidiaries;

• issue or sell capital stock of restricted subsidiaries;

• guarantee indebtedness;

• enter into transactions with stockholders or affiliates;

• create liens;

• sell assets and use the proceeds thereof;

• engage in sale-leaseback transactions; and

• enter into certain mergers and consolidations.

These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, merger, acquisition or other corporate opportunities and to fund our operations. If we incur additional debt in the future, covenant limitations on our activities (and risks associated with such increased debt levels generally) could increase.

Our credit agreement contains additional restrictive covenants, including financial maintenance requirements.  Our ability to comply with these covenants may be affected by events beyond our control, such as uncertainties related to the current economy, and we cannot be sure that we will be able to comply with these covenants.

A breach of a covenant or other provision in any debt instrument governing our current or future indebtedness could result in a default under that instrument and, due to cross-default and cross-acceleration provisions, could result in a default under any other debt instruments. Upon the occurrence of an event of default under any of our debt instruments, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them, if any, to secure the indebtedness. If the lenders under our current or future indebtedness accelerate the payment of the indebtedness, we cannot be sure that our assets would be sufficient to repay in full our outstanding indebtedness.

8

As a holding company, Denny’s Corporation depends on upstream payments from its operating subsidiaries. Accordingly, its ability to pay its obligations and to make any distributions to its shareholders depends on the performance of those subsidiaries and their ability to make distributions to Denny’s Corporation.

A substantial portion of our assets are owned, and a substantial percentage of our total operating revenues are earned, by our subsidiaries. Accordingly, Denny’s Corporation depends upon dividends, loans and other intercompany transfers from these subsidiaries to meet its obligations. These transfers may be subject to contractual and other restrictions.

The subsidiaries are separate and distinct legal entities and they have no obligation to Denny's Corporation, contingent or otherwise (other than under the credit facility with respect to which Denny’s Corporation is a guarantor and certain of its subsidiaries are borrowers), to make any funds available to meet its obligations, whether by dividend, distribution, loan or other payments. If the subsidiaries do not pay dividends or other distributions, Denny’s Corporation may not have sufficient cash to fulfill its obligations.

Our ability to make scheduled payments on our indebtedness will depend upon our subsidiaries’ operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our historical financial results have been, and our future financial results are expected to be, subject to substantial fluctuations. We cannot be sure that our subsidiaries will generate sufficient cash flow from operations to enable us to service or reduce our indebtedness or to fund our other liquidity needs.

If we are unable to meet our debt service obligations or fund our other liquidity needs, our subsidiaries may need to refinance all or a portion of their indebtedness on or before maturity or seek additional equity capital. We cannot be sure that they will be able to pay or refinance our indebtedness or that we will be able to obtain additional equity capital on commercially reasonable terms, or at all, especially in a difficult economic environment.

Item 1B.     Unresolved Staff Comments

None.

9

Item 2.     Properties

Most Denny’s restaurants are free-standing facilities with property sizes averaging approximately one acre. The restaurant buildings average between 3,800 - 4,800 square feet, allowing them to accommodate an average of 130-150 guests. The number and location of our restaurants as of December 28, 2011 and December 29, 2010 are presented below:

	2011						2010
State/Country	Company-Owned		Franchised / Licensed		Total		Company-Owned		Franchised / Licensed		Total
Alabama		2		5		7		—		4		4
Alaska		—		3		3		—		3		3
Arizona		10		72		82		10		68		78
Arkansas		—		11		11		—		9		9
California		73		344		417		74		346		420
Colorado		—		28		28		8		19		27
Connecticut		—		8		8		—		8		8
Delaware		1		—		1		1		—		1
District of Columbia		—		2		2		—		1		1
Florida		17		138		155		22		136		158
Georgia		1		14		15		1		15		16
Hawaii		6		3		9		6		3		9
Idaho		—		9		9		—		9		9
Illinois		9		47		56		19		38		57
Indiana		1		37		38		1		36		37
Iowa		—		3		3		—		3		3
Kansas		—		10		10		—		8		8
Kentucky		10		7		17		8		7		15
Louisiana		1		2		3		1		2		3
Maine		—		7		7		—		6		6
Maryland		3		20		23		3		21		24
Massachusetts		—		6		6		—		6		6
Michigan		4		18		22		6		16		22
Minnesota		—		13		13		—		13		13
Mississippi		1		2		3		—		2		2
Missouri		4		34		38		7		32		39
Montana		—		5		5		—		5		5
Nebraska		—		4		4		—		3		3
Nevada		7		25		32		8		24		32
New Hampshire		—		3		3		—		3		3
New Jersey		2		5		7		3		5		8
New Mexico		—		26		26		—		26		26
New York		1		48		49		1		48		49
North Carolina		—		20		20		—		20		20
North Dakota		—		4		4		—		4		4
Ohio		3		36		39		3		35		38
Oklahoma		—		17		17		—		16		16
Oregon		—		24		24		—		24		24
Pennsylvania		16		23		39		18		22		40
Rhode Island		—		2		2		—		2		2
South Carolina		—		15		15		—		16		16
South Dakota		—		3		3		—		3		3
Tennessee		2		4		6		2		4		6
Texas		19		167		186		19		157		176
Utah		—		25		25		—		23		23
Vermont		—		2		2		—		2		2
Virginia		10		19		29		10		20		30
Washington		—		46		46		—		46		46
West Virginia		—		2		2		—		2		2
Wisconsin		—		19		19		—		18		18
Wyoming		3		—		3		1		—		1
Canada		—		60		60		—		58		58
Costa Rica		—		3		3		—		2		2
Curacao N.V.		—		1		1		—		1		1
Guam		—		2		2		—		2		2
Honduras		—		2		2		—		1		1
Mexico		—		5		5		—		5		5
New Zealand		—		8		8		—		7		7
Puerto Rico		—		11		11		—		11		11
Total		206		1,479		1,685		232		1,426		1,658

10

Of the total 1,685 units in the Denny's brand, our interest in restaurant properties consists of the following:

	Company-Owned Units		Franchised Units		Total
Owned properties		44		45		89
Leased properties		162		353		515
		206		398		604

We have generally been able to renew our restaurant leases as they expire at then-current market rates. The remaining terms of leases range from less than one to approximately 36 years, including optional renewal periods. In addition to the restaurant properties, we own an 18-story, 187,000 square foot office building in Spartanburg, South Carolina, which serves as our corporate headquarters. Our corporate offices currently occupy approximately 16 floors of the building, with a portion of the building leased to others.

See Note 11 to our Consolidated Financial Statements for information concerning encumbrances on substantially all of our properties.

Item 3.     Legal Proceedings

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.

Item 4.     Mine Safety Disclosures

Not applicable.

PART II

Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our Common Stock is listed under the symbol “DENN” and trades on the NASDAQ Capital Market ("NASDAQ"). The following table lists the high and low sales prices of the Common Stock for each quarter of fiscal years 2011 and 2010, according to NASDAQ.

	High		Low
2011
First quarter	$	4.30	$	3.49
Second quarter		4.24		3.81
Third quarter		4.37		3.11
Fourth quarter		4.07		3.10
2010
First quarter	$	3.99	$	2.16
Second quarter		3.99		2.45
Third quarter		2.98		2.29
Fourth quarter		3.84		2.93

Stockholders

As of March 5, 2012, there were 96,104,464 shares of Common Stock outstanding and approximately 10,909 record and beneficial holders of Common Stock.

Dividends and Share Repurchases

Prior to the 2010 refinancing of our credit facility and repurchase and redemption of our public debt securities, distributions and dividends on Denny’s Corporation’s common equity securities were prohibited.  Our current credit facility allows for the payment of cash dividends and/or the purchase of Common Stock subject to certain limitations and continued maintenance of all relevant covenants before and after any such payment of any dividend or stock purchase. The aggregate amount available for such dividends or stock purchases is as follows:

• $10 million that can be used from time to time during the term of the facility, subject to a reduction for the use of such amount for certain investments and capital expenditures (which was fully utilized during 2010 and 2011); 

• an annual aggregate amount equal to $0.05 times the number of outstanding shares of Common Stock, that may not be carried forward to a future year if unused; and

• an annual amount based on Excess Cash Flow, as defined by our credit agreement, with the percentage available for any dividend or stock repurchase either set at 50%, 75% or 100% of said Excess Cash Flow based on achievement of certain financial ratios with the amount carried forward to future years if unused.

11

The table below provides information concerning repurchases of shares of our Common Stock during the quarter ended December 28, 2011.

Period	Total Number of Shares Purchased		Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Programs (2)(3)		Maximum Number of Shares that May Yet be Purchased Under the Program (3)
	(In thousands, except per share amounts)
September 29, 2011 – October 26, 2011		182	$	3.39		182		2,757
October 27, 2011 – November 23, 2011		285		3.44		285		2,472
November 24, 2011 – December 28, 2011		167		3.35		167		2,304
Total		634	$	3.40		634

(1)	Average price paid per share excludes commissions.
(2)	In April 2011, we announced that our Board of Directors had approved the repurchase of up to 6.0 million shares of Common Stock (in addition to a previous 3.0 million share authorization completed in the first quarter of 2011), which may take place from time to time on the open market (including through pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Securities Exchange Act of 1934) or through negotiated transactions, subject to market and business conditions.
(3)	During the quarter ended December 28, 2011, we purchased 634,156 shares of Common Stock for an aggregate consideration of $2.2 million, pursuant to the share repurchase program.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information as of December 28, 2011 with respect to our compensation plans under which equity securities of Denny’s Corporation are authorized for issuance.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved  by security holders		5,221,300	(1)	$	3.11		1,962,022	(2)
Equity compensation plans not approved by security holders		937,500	(3)		3.55		450,000	(4)
Total		6,158,800		$	3.15		2,412,022

(1)	Includes shares of Common Stock issuable pursuant to the grant or exercise of awards under the Denny’s Corporation 2008 Omnibus Incentive Plan (the “2008 Omnibus Plan”), the Denny’s Corporation Amended and Restated 2004 Omnibus Incentive Plan (the “2004 Omnibus Plan”), the Denny’s Inc. Omnibus Incentive Compensation Plan for Executives and the Advantica Stock Option Plan (collectively, the "Denny's Incentive Plans").
(2)	Includes shares of Common Stock available for issuance as awards of stock options, restricted stock, restricted stock units, deferred stock units and performance awards, under the 2008 Omnibus Plan and the 2004 Omnibus Plan.
(3)	Includes shares of Common Stock issuable pursuant to the grant or exercise of employment inducement awards of stock options and restricted stock units granted outside of the Denny's Incentive Plans in accordance with NASDAQ Listing Rule 5635(c)(4).
(4)	Includes shares of Common Stock available for issuance as awards of stock options and restricted stock units outside of the Denny's Incentive Plans in accordance with NASDAQ Listing Rule 5635(c)(4).

Performance Graph

The following graph compares the cumulative total stockholders’ return on our Common Stock for the five fiscal years ended December 28, 2011 (December 27, 2006 to December 28, 2011) against the cumulative total return of the Russell 2000® Index and a peer group.  The graph and table assume that $100 was invested on December 27, 2006 (the last day of fiscal year 2006) in each of the Company’s Common Stock, the Russell 2000® Index and the peer group and that all dividends were reinvested.

12

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG

DENNY’S CORPORATION, RUSSELL 2000® INDEX AND PEER GROUP

 

ASSUMES $100 INVESTED ON DECEMBER 27, 2006

ASSUMES DIVIDENDS REINVESTED

FISCAL YEAR ENDED DECEMBER 28, 2011

	Russell 2000® Index (1)		Peer Group (2)		Denny's Corporation
December 27, 2006	$	100.00	$	100.00	$	100.00
December 26, 2007	$	98.45	$	87.75	$	79.61
December 31, 2008	$	65.18	$	52.80	$	42.25
December 30, 2009	$	82.90	$	71.29	$	46.49
December 29, 2010	$	105.16	$	106.71	$	75.99
December 28, 2011	$	100.75	$	132.94	$	79.83

(1)

The Russell 2000 Index is a broad equity market index of 2,000 companies that measures the performance of the small-cap segment of the U.S. equity universe. As of December 31, 2011, the weighted average market capitalization of companies within the index was approximately $1.2 billion with the median market capitalization being approximately $0.5 billion.

(2)

The peer group consists of 19 public companies that operate in the restaurant industry. The peer group includes the following companies: Einstein Noah Restaurant Group (BAGL), Bob Evans Farms, Inc. (BOBE), Buffalo Wild Wings, Inc. (BWLD), The Cheesecake Factory Incorporated, (CAKE), Cracker Barrel Old Country Store, Inc. (CBRL), O’Charleys Inc. (CHUX), Chipotle Mexican Grill, Inc. (CMG), DineEquity, Inc. (DIN), Domino’s Pizza, Inc. (DPZ), Brinker International, Inc. (EAT), Jack In The Box Inc. (JACK), Panera Bread Company (PNRA), P.F. Chang’s China Bistro, Inc. (PFCB), Papa John’s International, Inc. (PZZA), Red Robin Gourmet Burgers, Inc. (RRGB), Ruby Tuesday, Inc. (RT), Sonic Corp. (SONC), Texas Roadhouse, Inc. (TXRH) and The Wendy’s Company (WEN).

13

Item 6.     Selected Financial Data

The following table provides selected financial data that was extracted or derived from our audited financial statements. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related notes included elsewhere in this report.

	Fiscal Year Ended
	December 28, 2011 (a)			December 29, 2010			December 30, 2009			December 31, 2008 (b)			December 26, 2007
	(In millions, except ratios and per share amounts)
Statement of Income Data:
Operating revenue	$	538.5		$	548.5		$	608.1		$	760.3		$	939.4
Operating income		51.0			55.2			72.4			60.9			79.8
Income from continuing operations	$	112.3		$	22.7		$	41.6		$	12.7		$	29.5
Basic net income per share:	$	1.15		$	0.23		$	0.43		$	0.13		$	0.31
Diluted net income per share:	$	1.13		$	0.22		$	0.42		$	0.13		$	0.30
Cash dividends per common share (c)		—			—			—			—			—
Balance Sheet Data (at end of period):
Current assets	$	61.3		$	62.5		$	58.3		$	53.5		$	57.9
Working capital deficit (d)		(25.9	)		(27.8	)		(33.8	)		(53.7	)		(73.6	)
Net property and equipment		112.8			129.5			131.5			160.0			184.6
Total assets		350.5			311.2			312.6			341.8			373.9
Long-term debt, excluding current portion		211.3			253.1			274.0			322.7			346.8

(a)	During 2011, we concluded that it is more likely than not that certain of our deferred tax assets will be utilized. As a result, we released the majority of our valuation allowance, recognizing a tax benefit of $89.1 million.
(b)	The fiscal year ended December 31, 2008 includes 53 weeks of operations as compared with 52 weeks for all other years presented. We estimate that the additional, or 53rd, week added approximately $14.3 million of operating revenue in 2008.
(c)	Prior to the 2010 refinancing of our credit facility and repurchase and redemption of our public debt securities, distributions and dividends on Denny’s Corporation’s common equity securities were prohibited.  Our current credit facility allows for the payment of cash dividends and/or the purchase of Common Stock subject to certain limitations. See Part II Item 5.
(d)	A negative working capital position is not unusual for a restaurant operating company. The decrease in working capital deficit from December 26, 2007 to December 28, 2011 is primarily due to the sale of company-owned restaurants to franchisees from 2007 through 2011.

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with “Selected Financial Data,” and our Consolidated Financial Statements and the notes thereto.

Overview

Denny’s Corporation is one of America’s largest family-style restaurant chains. Our fiscal year ends on the Wednesday in December closest to December 31 of each year. As a result, a fifty-third week is added to a fiscal year every five or six years. 2011, 2010 and 2009 each included 52 weeks of operations. Our revenues are derived primarily from two sources: the sale of food and beverages at our company-owned restaurants and the collection of royalties and fees from restaurants operated by our franchisees under the Denny’s name. Sales and customer traffic at both company-operated and franchised restaurants are affected by the success of our marketing campaigns, new product introductions and customer service, as well as external factors including competition, economic conditions affecting consumer spending and changes in guest tastes and preferences. Sales at company-owned restaurants and royalty income from franchise restaurants are also impacted by the opening of new restaurants, the closing of existing restaurants and the sale of company restaurants to franchisees.

Our operating costs are exposed to volatility in two main areas: product costs and payroll and benefit costs. Many of the products sold in our restaurants are affected by commodity pricing and are, therefore, subject to price volatility. This volatility is caused by factors that are fundamentally outside of our control and are often unpredictable. In general, we purchase food products based on market prices or we set firm prices in purchase agreements with our vendors. Our ability to lock in prices on certain key commodities is imperative to control food costs in an environment in which many commodity prices are on the rise. In addition, our continued success with menu management helps us to maintain favorable product costs. Our $2 $4 $6 $8 Value Menu®, along with other promotional activities, are generally focused on menu items with lower food costs that still provide a compelling value to our customers. The volatility of payroll and benefit costs results primarily from changes in wage rates and increases in labor related expenses, such as medical benefit costs and workers’ compensation costs. A number of our employees are paid the minimum wage. Accordingly, substantial increases in the minimum wage increase our labor costs. Additionally, changes in guest counts and investments in store-level labor impact payroll and benefit costs as a percentage of sales.

14

Our focus on the following initiatives has had a significant impact on our financial performance during 2011 and over the past several years:

Franchise Growth Initiative

During 2011, we continued our Franchise Growth Initiative a strategic initiative to increase franchise restaurant development through the sale of certain geographic clusters of company restaurants to both current and new franchisees. In 2011, as a result of our FGI, we sold 30 restaurant operations to franchisees. As of December 28, 2011, we have sold 344 company restaurants since our FGI program began in early 2007.

Fulfilling the unit growth expectations of this program, certain franchisees that purchased company restaurants over the past several years also signed development agreements to build additional new franchise restaurants. In addition to these franchise development agreements, we have been negotiating development agreements outside of our FGI program. The positive impact of these development programs is evident in the increasing number of franchise restaurant openings over the past several years. Through our various development efforts, we have negotiated development agreements for 217 new domestic restaurants, 108 of which have opened. The majority of the units in the pipeline are expected to open over the next five years. While the majority of the units scheduled under these agreements are on track, from time to time some of our franchisees' ability to grow and meet their development commitments is hampered by the economy and the difficult lending environment.

Conversion of Flying J Travel Center Restaurants

During the prior year, Denny's was selected as the full-service restaurant operator of choice for Pilot Travel Centers LLC. Also, during the prior year, Pilot merged with Flying J Travel Centers. Now named Pilot Flying J, the company is North America’s largest retail operator of travel centers. We began converting former Flying J restaurant operations to Denny’s in July 2010 and, as of December 28, 2011, had converted 123 sites, 23 of which now operate as company restaurants and 100 of which now operate as franchise restaurants, thus completing the Flying J conversions.

Specifically, our focus on these growth initiatives has impacted our financial performance as follows:

· Company restaurant sales have decreased from $488.9 million in 2009 to $411.6 million in 2011, primarily as a result of the sale of restaurants to franchisees.

· The decline in company restaurant revenues is partially offset by increased royalty income derived from the growth in the franchise restaurant base resulting from both traditional development and the conversion of restaurants. As a result, royalty income, which is included as a component of franchise and license revenue, has increased from $70.7 million in 2009 to $79.2 million in 2011. 

· The resulting net reduction in total revenue related to our FGI is generally recovered by the benefits of a lower cost structure related to franchise and license revenues, a decrease in depreciation and amortization from the sale of restaurant related assets to franchisees (from $32.3 million in 2009 to $28.0 million in 2011) and a reduction in interest expense resulting from the use of proceeds to reduce debt (from $32.6 million in 2009 to $20.0 million in 2011). See also "Debt and Refinancing and Reductions" below.

· Initial franchise fees, included as a component of franchise and license revenue, are generally recognized in the period in which a restaurant is sold to a franchisee or when a new unit is opened. These initial fees are completely dependent on the number of restaurants sold to or opened by franchisees during a particular period and, as a result, can cause fluctuations in our total franchise and license revenue from year to year.

· Occupancy revenues, also included as a component of franchise and license revenue, result from leasing or subleasing restaurants to franchisees. As a result of our FGI, occupancy revenues have increased from $43.5 million in 2009 to $44.5 million in 2011. Additionally, when restaurants are sold and leased or subleased to franchisees, the occupancy costs related to these restaurants moves from costs of company restaurant sales to costs of franchise and license revenue to match the related occupancy revenue. As subleases with franchisees end over time, franchise occupancy revenue and costs could decrease if franchisees enter into direct leases with landlords. 

· Gains on sales of assets are primarily dependent on the number of restaurants sold to franchisees during a particular period, and as a result, can cause fluctuations in net income from year to year. As we near the completion of our FGI, gains on sales of assets will continue to decrease.

As a result of the development efforts described above, over the past five years we have transitioned from a portfolio mix of 66% franchised and 34% company-operated to a portfolio mix of 88% franchised and 12% company-operated. Our targeted portfolio mix is 90% franchised and 10% company-operated. We anticipate achieving this goal through a combination of new franchise unit growth and the sale of restaurants to franchisees by the end of 2012. We expect that the future growth of the brand will come primarily from the development of franchise restaurants.

15

Debt Refinancing and Reductions

Interest expense has a significant impact on our net income as a result of our indebtedness. However, over the past several years, we have continued to reduce interest expense through a series of debt repayments using the proceeds generated from our FGI transactions, sales of real estate and cash flow from operations. These repayments resulted in an overall debt reduction of approximately $46.7 million during 2009, $15.0 million during 2010 and $42.0 million in 2011.

During the first quarter of 2011, we amended our credit facility principally to take advantage of lower interest rates available in the senior secured debt market. Interest on our credit facility, as amended, is payable at per annum rates equal to LIBOR plus 375 basis points, with a LIBOR floor of 1.50% for the term loan and no LIBOR floor for the revolver, compared with an interest rate of LIBOR plus 475 basis points and a LIBOR floor of 1.75% for both the term loan and the revolver prior to the re-pricing.

The combination of lower debt balances and lower overall interest rates on our debt will continue to positively benefit our financial performance on an ongoing basis.

Share Repurchases

Our credit facility permits the payment of cash dividends and/or the purchase of Denny’s stock subject to certain limitations. During 2011, we completed the 3.0 million share stock repurchase program that we began in November 2010. In April 2011, our Board of Directors approved an additional share repurchase program authorizing us to repurchase up to 6.0 million shares of our Common Stock. Under the program, we could, from time to time, purchase shares in the open market (including through pre-arranged stock trading plans in accordance with guidelines specified in Rule 10b5-1 under the Securities Exchange Act of 1934) or in privately negotiated transactions, subject to market and business conditions. As of December 28, 2011, we had repurchased 3.7 million shares of Common Stock for $14.0 million under this 6.0 million share repurchase program.

Repurchased shares are included as treasury stock in the Consolidated Balance Sheets and the Consolidated Statements of Shareholders' Deficit and Comprehensive Loss.

16

Statements of Income

	Fiscal Year Ended
	December 28, 2011					December 29, 2010					December 30, 2009
	(Dollars in thousands)
Revenue:
Company restaurant sales	$	411,595		76.4	%	$	423,936		77.3	%	$	488,948		80.4	%
Franchise and license revenue		126,939		23.6	%		124,530		22.7	%		119,155		19.6	%
Total operating revenue		538,534		100.0	%		548,466		100.0	%		608,103		100.0	%
Costs of company restaurant sales (a):
Product costs		101,796		24.7	%		101,470		23.9	%		114,861		23.5	%
Payroll and benefits		167,574		40.7	%		172,533		40.7	%		197,612		40.4	%
Occupancy		27,372		6.7	%		27,967		6.6	%		31,937		6.5	%
Other operating expenses		61,017		14.8	%		64,029		15.1	%		73,496		15.0	%
Total costs of company restaurant sales		357,759		86.9	%		365,999		86.3	%		417,906		85.5	%
Costs of franchise and license revenue (a)		44,368		35.0	%		46,987		37.7	%		42,626		35.8	%
General and administrative expenses		55,352		10.3	%		55,619		10.1	%		57,282		9.4	%
Depreciation and amortization		27,979		5.2	%		29,637		5.4	%		32,343		5.3	%
Operating (gains), losses and other charges, net		2,102		0.4	%		(4,944	)	(0.9	%)		(14,483	)	(2.4	%)
Total operating costs and expenses, net		487,560		90.5	%		493,298		89.9	%		535,674		88.1	%
Operating income		50,974		9.5	%		55,168		10.1	%		72,429		11.9	%
Other expenses:
Interest expense, net		20,040		3.7	%		25,792		4.7	%		32,600		5.4	%
Other nonoperating expense (income), net		2,607		0.5	%		5,282		1.0	%		(3,125	)	(0.5	%)
Total other expenses, net		22,647		4.2	%		31,074		5.7	%		29,475		4.8	%
Net income before income taxes		28,327		5.3	%		24,094		4.4	%		42,954		7.1	%
Provision for (benefit from) income taxes		(83,960	)	(15.6	%)		1,381		0.3	%		1,400		0.2	%
Net income	$	112,287		20.9	%	$	22,713		4.1	%	$	41,554		6.8	%
Other Data:
Company-owned average unit sales	$	1,838				$	1,813				$	1,810
Franchise average unit sales	$	1,385				$	1,361				$	1,396
Company-owned equivalent units (b)		224					234					270
Franchise equivalent units (b)		1,447					1,349					1,274
Company same-store sales increase (decrease) (c)(d)		0.8	%				(3.6	%)				(3.7	%)
Guest check average increase (decrease) (d)		0.6	%				(1.7	%)				1.0	%
Guest count increase (decrease) (d)		0.2	%				(1.9	%)				(4.6	%)
Franchised and licensed same-store sales increase (decrease) (c)(d)		0.7	%				(3.7	%)				(5.2	%)

(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 the defined time period.
(c)	Same-store sales include sales from restaurants that were open the same period in the prior year.
(d)	Prior year amounts have not been restated for 2011 comparable units.

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2011 Compared with 2010

Unit Activity

	Fiscal Year Ended
	December 28, 2011			December 29, 2010
Company-owned restaurants, beginning of period		232			233
Units opened		8			24
Units relocated		—			1
Units sold to franchisees		(30	)		(24	)
Units closed (including units relocated)		(4	)		(2	)
End of period		206			232
Franchised and licensed restaurants, beginning of period		1,426			1,318
Units opened		53			112
Units relocated		1			4
Units purchased from Company		30			24
Units closed (including units relocated)		(31	)		(32	)
End of period		1,479			1,426
Total restaurants, end of period		1,685			1,658

Of the 62 units opened and relocated during the year ended December 28, 2011, eight company-owned units and 15 franchise units represent conversions and openings of restaurants at Pilot Flying J Travel Centers. Of the 141 units opened and relocated during the year ended December 29, 2010, 21 company-owned and 79 franchise units represent conversions and openings of restaurants at Pilot Flying J Travel Centers.

Company Restaurant Operations

During the year ended December 28, 2011, we realized a 0.8% increase in same-store sales, comprised of a 0.6% increase in guest check average and a 0.2% increase in guest counts. Company restaurant sales decreased $12.3 million, or 2.9%, primarily resulting from a ten equivalent unit decrease in company-owned restaurants, partially offset by the increase in same-store sales for the year. The decrease in equivalent units resulted from the sale of company-owned restaurants to franchisees.

Total costs of company restaurant sales as a percentage of company restaurant sales increased to 86.9% from 86.3%. Product costs increased to 24.7% from 23.9% primarily due to the impact of increased commodity costs. Payroll and benefits costs remained flat at 40.7% as improved scheduling of restaurant staff was offset by unfavorable workers’ compensation claims development and higher incentive compensation. Occupancy costs increased slightly to 6.7% from 6.6%. Other operating expenses were comprised of the following amounts and percentages of company restaurant sales:

	Fiscal Year Ended
	December 28, 2011				December 29, 2010
	(Dollars in thousands)
Utilities	$	18,051	4.4	%	$	18,221	4.3	%
Repairs and maintenance		7,207	1.8	%		7,428	1.8	%
Marketing		16,052	3.9	%		17,376	4.1	%
Legal settlement costs		831	0.2	%		446	0.1	%
Other direct costs		18,876	4.6	%		20,558	4.8	%
Other operating expenses	$	61,017	14.8	%	$	64,029	15.1	%

Marketing decreased 0.2 percentage points primarily as a result of additional corporate investment in media in the prior year period.

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:

	Fiscal Year Ended
	December 28, 2011				December 29, 2010
	(Dollars in thousands)
Royalties	$	79,221	62.4	%	$	73,034	58.6	%
Initial and other fees		3,197	2.5	%		6,721	5.4	%
Occupancy revenue		44,521	35.1	%		44,775	36.0	%
Franchise and license revenue		126,939	100.0	%		124,530	100.0	%
Occupancy costs		33,622	26.5	%		34,373	27.6	%
Other direct costs		10,746	8.5	%		12,614	10.1	%
Costs of franchise and license revenue	$	44,368	35.0	%	$	46,987