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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Commission file number 0-18051

Registrant’s telephone number, including area code:

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

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

     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 o

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes þ         No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes o         No þ

     The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $10,690,234 as of March 13, 2003, based upon the closing sales price of registrant’s common stock on that date of $0.64 per share.

     As of March 13, 2003, 40,742,929 shares of registrant’s common stock, $.01 par value per share, were outstanding.

     Documents incorporated by reference. Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2003 are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

      The forward-looking statements included in the “Business,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk” sections, which reflect our best judgment based on factors currently known, involve risks and uncertainties. Words such as “expects,” “anticipates,” “believes,” “intends,” “plans,” and “hopes,” variations of such words and similar expressions are intended to identify such forward-looking statements. 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 those set forth in the cautionary statements contained in Exhibit 99 to this Form 10-K (see Exhibit 99 — Safe Harbor Under the Private Securities Litigation Reform Act of 1995). The forward-looking information we have provided in such sections pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors.

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PART I

Item 1.     Business

Introduction

      Denny’s Corporation (formerly Advantica Restaurant Group, Inc., or Advantica), or Denny’s, is one of the largest restaurant companies in the United States. Denny’s Corporation, through its wholly owned subsidiaries, Denny’s Holdings, Inc. and Denny’s, Inc., owns and operates the Denny’s restaurant brand. The Denny’s brand consists of 1,676 restaurants, 566 of which are company-owned and operated and 1,110 of which are franchised and licensed restaurants.

      On January 7, 1998, Advantica’s predecessor, Flagstar Companies, Inc., or FCI, and its wholly owned subsidiary Flagstar Corporation, or Flagstar, emerged from proceedings under Chapter 11 of the United States Bankruptcy Code pursuant to FCI’s and Flagstar’s Amended Joint Plan of Reorganization dated as of November 7, 1997. Also on January 7, 1998, Flagstar merged with and into FCI, the surviving corporation, and FCI changed its name to Advantica Restaurant Group, Inc. FCI’s operating subsidiaries did not file bankruptcy petitions and were not parties to the above mentioned Chapter 11 proceedings. As a result of the reorganization, we significantly reduced our debt and simplified our capital structure, although we remain highly leveraged. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for information concerning our indebtedness and debt service requirements.

      On July 10, 2002, we completed the divestiture of FRD Acquisition Co., or FRD, a wholly owned subsidiary. We have accounted for FRD as a discontinued operation, through that date, in the accompanying consolidated financial statements. See “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Notes 1 and 14 to our consolidated financial statements for additional information.

      With the completion of the FRD divestiture, Advantica completed its transition from a restaurant holding company to a one-brand entity; accordingly, on July 10, 2002, we changed our name to Denny’s Corporation.

Description of Business

      Denny’s is the nation’s largest family-style restaurant chain in terms of market share, number of units and U.S. systemwide sales. At December 25, 2002, Denny’s restaurants operated in 49 states, the District of Columbia, 2 U.S. territories and 4 foreign countries, with concentrations in California (24% of total restaurants), Florida (11%) and Texas (9%). Denny’s restaurants are designed to provide a “dining value” with moderately-priced food, friendly and efficient service and a pleasant atmosphere. We believe that Denny’s benefits from its generally strong market position and consumer recognition.

      Denny’s restaurants generally are open 24 hours a day, 7 days a week. Denny’s restaurants offer traditional family fare (including breakfast items, appetizers, hamburgers, sandwiches, salads, steaks, chicken, and desserts), and provide both counter and table service. Denny’s sales are evenly distributed across each of its dayparts (i.e., breakfast, lunch, dinner and late-night); however, breakfast items account for the majority of Denny’s sales. In 2002, Denny’s company-owned restaurants had an average guest check of $6.71 and average sales of $1.5 million.

      During 2002, we placed greater emphasis on food flavor and preparation and upgraded the menu to increase consumer appeal. New products such as our BBQ Chicken Sandwich and Fabulous French Toast were added to the menu to improve the taste experience of our customers. We also continued to focus on delivering value to our customers with promotions featuring our signature $2.99 Grand Slam Breakfast and programs such as “Kids Eat Free.”

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      In 2001 and 2002, we implemented initiatives designed to improve the customer service component of our dining value formula. We invested more dollars into store-level labor and focused our personnel on delivering outstanding customer service by realigning our incentive programs.

      To provide a well-maintained, comfortable environment and improve the overall customer experience, we reinvested significantly in our restaurant facilities in 2001 and 2002. During the years ended December 26, 2001 and December 25, 2002, we spent approximately $41 million and $42 million, respectively, in capital expenditures and $28 million and $19 million, respectively, for repairs and maintenance. We have remodeled approximately 300 restaurants in the past three years. In addition, our franchisees have remodeled approximately 110 restaurants in the past two years. We believe our remodel program appeals to existing and new franchisees, which is integral to the completion of the program systemwide.

      We have an ongoing restaurant evaluation process to ensure that capital resources are effectively allocated to our company-owned units. As part of this process, we closed 61 and 45 underperforming restaurants during 2001 and 2002, respectively, that did not warrant additional capital investment. In addition, we sold 13 company-owned units to franchisees in 2002, compared with 59 units in 2001.

      Although we expect to continue selling company-owned units to franchisees on a limited basis, franchise unit development is generally expected to occur through new franchise unit openings. We opened 46 and 38 new franchise units in 2001 and 2002, respectively. The initial fee for a single Denny’s franchise is $40,000 and the royalty payment is 4% of gross sales. Similar to our company-owned unit closure activity, franchisees closed 57 and 68 underperforming units during 2001 and 2002, respectively.

      We believe that the proper execution of basic restaurant operations in each of our Denny’s restaurants, whether it is company-owned or franchised, is critical to our success. To meet and exceed our customers’ expectations, we rely on our franchisees to maintain the same strict brand standards our company-owned restaurants follow. These standards relate to the preparation and efficient service of quality food; maintenance, repair and cleanliness of restaurants; and the appearance and conduct of employees.

     Operations

      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. Through a network of division, region, area and restaurant level managers, we maintain standardized specifications for proper food preparation and delivery and the cost-effective procurement and distribution of quality food products.

      A principal feature of Denny’s restaurant operations is the constant focus on improving operations at the unit level. Unit managers are especially hands-on and versatile in their supervisory activities. Region and area managers have no offices and spend substantially all of their time in the restaurants. A significant majority of 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 a training program for associates and restaurant managers. Video training tapes demonstrating various restaurant job functions are located at each restaurant and are viewed by associates prior to a change in job function or before using new equipment or procedures. General managers and restaurant managers receive training at specially designated training units in the following areas:

	•	customer interaction;
	•	kitchen management and food preparation;
	•	data processing and cost control techniques;
	•	equipment and building maintenance; and
	•	leadership skills.

      During 2002, Denny’s initiated its Denny’s University program to provide further development of company area managers and franchise operations managers. Denny’s University offers broad training programs to develop business skills among our field leaders.

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      Denny’s also regularly evaluates its menu. New products are developed in our test kitchen and then introduced in selected restaurants to determine customer response and to ensure that consistency, quality standards and profitability are maintained. If a new item proves successful at the research and development level, it is usually tested in selected markets. A successful menu item is then incorporated into the restaurant system. While research and development is important to the Denny’s business, amounts expended for these activities are not significant.

      Financial and management control is facilitated in all of the Denny’s company-owned restaurants by the use of point-of-sale, or POS, systems which transmit detailed sales reports, payroll data and periodic inventory information for management review.

     Advertising

      We use an integrated advertising process to promote our concepts, including:

	•	media;
	•	menu pricing strategy;
	•	interior/exterior building design; and
	•	specialized promotions to help differentiate Denny’s from our competitors.

      Media advertising is primarily product oriented, generally featuring consistent, high-quality entrees presented to communicate great food at great values to our guests. Our advertising is conducted, depending on the market, through:

	•	national and local television advertising;
	•	radio; and
	•	outdoor and print advertising.

      Denny’s integrated advertising approach reaches out to all consumers. Relevant messages are created to target general markets, as well as African American, Hispanic and Asian markets. Community outreach programs are designed to enhance our diversity efforts. We use sophisticated consumer marketing research techniques to measure customer satisfaction and customers’ evolving expectations.

     Site Selection

      The success of any restaurant is influenced significantly by its location. Our real estate and franchise development groups work 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.

     Raw Materials Sources and Availability

      We have a centralized purchasing program which 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.

      In connection with the 1995 sale of our distribution subsidiary, Proficient Food Company, or PFC, to Meadowbrook Meat Company, or MBM, we entered into an eight-year distribution agreement with MBM, subsequently extended to September 7, 2005, under which PFC/ MBM will continue to distribute and supply certain products and supplies to Denny’s restaurants. There are no volume requirements relative to

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      We purchase approximately 85% of our restaurant products and supplies from PFC/ MBM. We believe that satisfactory sources of supply are generally available for all the items regularly used by our restaurants, and we have not experienced any material shortages of food, equipment, or other products which are necessary to our restaurant operations.

     Seasonality

      Our business is moderately seasonal. Restaurant sales are generally greater 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. Occupancy and other operating costs, which remain relatively constant, have a disproportionately greater negative effect on operating results during quarters with lower restaurant sales.

     Trademarks and Service Marks

      Either directly or through 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® and Grand Slam Breakfast®. 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, while 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 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 can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. A large portion of mid-scale business comes from three categories — family style, family steak and cafeteria — and is characterized by complete meals, menu variety and moderate prices ($5 to $8 average check). The family style category, which includes Denny’s, consists of a small number of national chains, many local and regional chains, and thousands of independent operators. The casual dining segment, which typically has higher menu prices ($8 to $16 average check) and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks (generally $3 to $5), portable meals, fast service and convenience.

      The restaurant industry is highly competitive, and competition among major companies that own or operate restaurant chains is especially intense. Restaurants compete on the basis of name recognition and advertising; the price, quality, variety, and perceived value of their food offerings; the quality of their customer service; and the convenience and attractiveness of their facilities. Commercial restaurants have faced increased competition from other nontraditional suppliers of prepared meals over the recent past. A primary example of this competition is the increase in prepared meals available in many grocery outlets. In addition, despite recent changes in economic conditions, competition for qualified restaurant-level personnel remains high.

      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, distribution and field supervision. Additionally, we

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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, 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 and utilities expenses and unfavorable weather.

Government Regulations

      We and our franchisees are subject to local, state and federal laws and regulations governing various aspects of the restaurant business, including, but not limited to:

	•	health;
	•	sanitation;
	•	land use, sign restrictions and environmental matters;
	•	safety;
	•	disabled persons’ access to facilities;
	•	the sale of alcoholic beverages; and
	•	hiring and employment practices.

      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 governing matters such as minimum wage, overtime and other working conditions. At December 25, 2002, a substantial number of our employees were paid the minimum wage. Accordingly, increases in the minimum wage or decreases in the allowable tip credit (which reduces the minimum wage 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. The California minimum wage increased from $5.75 per hour to $6.25 per hour on January 1, 2001 and increased to $6.75 per hour on January 1, 2002. 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 can continue to pass on such cost increases to our customers.

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.

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Employees

      At December 25, 2002, we had approximately 28,000 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 our relations with our employees to be satisfactory.

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Item 2.     Properties

      Most Denny’s restaurants are free-standing facilities, with property sizes averaging approximately one acre. The restaurant buildings average 4,800 square feet, allowing them to accommodate an average of 140 guests. The number and location of our restaurants as of December 25, 2002 are presented below:

      Of the 566 restaurants we operated as of December 25, 2002, we owned the land and building of 149, owned the building and leased the land of 26, and leased both the land and building of 396. We also owned the land and building of 98 franchised restaurants and leased the land and building of an additional 265 franchised restaurants, which we leased or subleased to our franchisees.

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      In addition to the restaurants, we own an 18-story, 187,000 square foot office tower in Spartanburg, South Carolina, which serves as our corporate headquarters. Our corporate offices currently occupy approximately 15 floors of the tower, with the balance leased to others.

      See Note 7 to our consolidated financial statements for information concerning encumbrances on some of our properties.

Item 3.     Legal Proceedings

      Four former Denny’s restaurant managers initiated, in the Superior Court for King County, Washington, a class action lawsuit seeking, among other things, overtime compensation. The action, which was originally filed on May 16, 2000, was certified on July 31, 2001 as a class action with all managers and general managers who worked for company-owned Denny’s restaurants in Washington since January 1, 1997 being identified as class members. The suit alleged that managers at Denny’s were not exempt “executive” employees because they spend most of their time on nonexempt tasks, thus entitling them to overtime compensation. Denny’s contends that it properly classifies it managers as salaried employees, thereby exempting them from the payment of overtime compensation. The parties reached an agreement to resolve the claims of individuals who were employed as managers of Denny’s in Washington between May 17, 1997 and May 24, 2002. While continuing to deny liability, we elected to resolve the case to avoid the expense of continued litigation. The settlement was approved by the Court by final judgment dated October 31, 2002 and paid prior to year end.

      There are various claims and pending legal actions against or indirectly involving us, including actions concerned with civil rights of employees and customers, other employment related matters, taxes, sales of franchise rights and businesses and other matters. Our ultimate legal and financial liability with respect to these matters cannot be estimated with certainty. However, we believe, based on our examination of these matters and our experience to date, that the ultimate disposition of them will not significantly affect our financial position or results of operations.

Item 4.     Submission of Matters to a Vote of Security Holders

      Not applicable.

PART II

Item 5.     Market for Registrant’s Common Equity and Related Stockholder Matters

      Our common stock and warrants are listed under the symbols “DNYY” and “DNYYW,” respectively, and are eligible for trading on the Over-the-Counter Bulletin Board, or the OTCBB. As of March 13, 2003, 40,742,929 shares of common stock and 3,236,104 warrants were outstanding, and there were approximately 3,664 record and beneficial holders of common stock and 21 warrant holders of record. We have never paid dividends on our common equity securities. Furthermore, restrictions contained in the instruments governing our outstanding indebtedness prohibit us from paying dividends on the common stock in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Note 7 to our consolidated financial statements.

      The following tables list the high and low closing sales prices of the common stock for each quarter of fiscal years 2001 and 2002. The sales prices were obtained from the OTCBB®.

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      Set forth below are certain selected financial data for the one week ended January 7, 1998, the fifty-one weeks ended December 30, 1998 and the fiscal years ended December 29, 1999, December 27, 2000, December 26, 2001 and December 25, 2002. Such data generally have been derived from our consolidated financial statements for such periods, which have been audited. The following information should be read in conjunction with our consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented elsewhere in this report.

      Certain amounts in all periods presented have been reclassified to conform to the 2002 presentation.

(a)	As discussed in the “Business and Introduction,” FCI and Flagstar emerged from bankruptcy on January 7, 1998. The change in ownership of Denny’s effected by the financial restructuring resulting from the bankruptcy required the application of fresh start reporting effective January 7, 1998 in accordance with the American Institute of Certified Public Accountants’ Statement of Position 90-7, or SOP 90-7, “Financial Reporting By Entities in Reorganization Under the Bankruptcy Code.” All financial statements subsequent to January 7, 1998 are referred to as “Successor Company” statements, as they reflect periods subsequent to the implementation of fresh start reporting and are not comparable to the financial statements for periods prior to January 7, 1998.
(b)	Operating income (loss) includes restructuring and impairment charges of $136.5 million, $19.0 million, $30.5 million, and $8.1 million, for 1999, 2000, 2001 and 2002, respectively. For a

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	discussion of these charges, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” and Notes 2 and 4 to our consolidated financial statements. Additionally, as a result of adopting Statement of Financial Accounting No. 142, or SFAS 142, “Goodwill and Other Intangible Assets,” at the beginning of fiscal year 2002, we are no longer amortizing goodwill and trade names. For a discussion of the adoption of SFAS 142, see Note 3 to our consolidated financial statements.
	We calculate “EBITDA” as operating income (loss) before depreciation and amortization as follows:

		For Denny’s, EBITDA is a key internal measure used to evaluate the amount of cash flow available for debt repayment and funding of additional investments. EBITDA is not a measure defined by accounting principles generally accepted in the United States of America and should not be considered as an alternative to net income or cash flow data prepared in accordance with accounting principles generally accepted in the United States of America. Following recent guidance from the Securities and Exchange Commission, we have changed our definition of EBITDA to operating income before depreciation and amortization. Previously, we reported EBITDA as operating income before depreciation and amortization as well as before charges for restructuring, exit costs and impairment.

(c)	We have classified as discontinued operations restaurant subsidiaries Flagstar Enterprises, Inc., or FEI, (which operated our Hardee’s restaurants under licenses from Hardee’s Food Systems), Quincy’s Restaurants, Inc., or Quincy’s, El Pollo Loco, Inc., or EPL, and FRD. FEI and Quincy’s were sold in 1998, and EPL was sold in 1999. On July 10, 2002, we completed the divestiture of FRD. See Note 14 to our consolidated financial statements.
(d)	The income from continuing operations for the one week ended January 7, 1998 includes reorganization items of $582.0 million resulting from the application of fresh start reporting in accordance with SOP 90-7.
(e)	Our bank facilities have prohibited, and our public debt indentures have significantly limited, distributions and dividends on Denny’s Corporation (and its predecessors’) common equity securities. See Note 7 to our consolidated financial statements.

(f)

For purposes of computing the ratio of earnings to fixed charges or deficiency in the coverage of fixed charges by earnings before fixed charges, fixed charges consist of interest expense including capitalized interest, amortization of debt expenses and the interest element in rental payments under operating leases (estimated to be one third of the total rental payments). Earnings consist of income from continuing operations before income taxes and fixed charges excluding capitalized interest.

(g)

The current assets and working capital deficit amounts presented exclude assets held for sale of $87.7 million as of December 30, 1998, and net liabilities of discontinued operations of $54.0 million as of December 29, 1999, $69.4 million as of December 27, 2000 and $15.1 million as of December 26, 2001. For 1998, net assets held for sale relate to EPL. For 1999, 2000 and 2001, net liabilities of discontinued operations relate to FRD. We completed the divestiture of FRD on July 10, 2002. See Note 14 to our consolidated financial statements.

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(h)

A negative working capital position is not unusual for a restaurant operating company. The increase in the working capital deficit from December 30, 1998 to December 29, 1999 is attributable primarily to the reclassification of certain mortgage notes to current liabilities and a reduction in cash and cash equivalents related to acquisitions of restaurants, the retirement of a portion of our senior notes and expenditures related to Denny’s reimaging program. The decrease in working capital deficit from December 29, 1999 to December 27, 2000 is attributable primarily to the increase in Denny’s refranchising activity in 2000. The decrease in working capital deficit from December 27, 2000 to December 26, 2001 is primarily related to the use of cash on hand and borrowings under the revolving credit facility to satisfy current liabilities, the reduction in capital lease obligations resulting in the extraordinary gain recorded in 2001 and the reduction of company-owned units from refranchising activity and store closures. The decrease in working capital deficit from December 26, 2001 to December 25, 2002 is primarily related to the use of cash on hand and borrowings under the revolving credit facility to satisfy current liabilities and the reduction of company-owned units from store closures.

(i)	Net cash flows provided by (used in) investing activities include net proceeds of $460.4 million from the disposition of FEI and Quincy’s in the fifty-one weeks ended December 31, 1998 and net proceeds of $109.4 million from the sale of EPL in 1999. For 2000, net cash flows from investing activities include $158.7 million of proceeds from the maturity of investments securing our in-substance defeased debt (see (j) below). For 2001, net cash flows used in investing activities include $53.3 million of advances to discontinued operations. For 2002, net cash flows used in investing activities include proceeds of $39.4 million of receipts from discontinued operations resulting primarily from the divestiture of FRD on July 10, 2002 (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Note 14 to our consolidated financial statements).
(j)	Net cash flows provided by (used in) financing activities for 2000 include the repayment of the $160.0 million principal amount of Denny’s mortgage notes and the repayment of the $153.3 million principal amount of our in-substance defeased debt through the use of the proceeds described in (i) above. For 2001, net cash flows provided by financing activities include borrowings of $58.7 million under our revolving credit facility. For 2002, net cash flows provided by financing activities include net repayments of $12.0 million under our revolving credit facility (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Note 7 to our consolidated financial statements).

      The following discussion should be read in conjunction with “Selected Financial Data,” and our consolidated financial statements and other more detailed financial information appearing elsewhere herein.

Critical Accounting Policies and Estimates

      Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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. On an ongoing basis, we evaluate our estimates, including those related to self-insurance liabilities, impairment of long-lived assets, and restructuring and exit costs. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 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 and that actual results will not vary significantly from the estimated amounts.

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      We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

      Self-insurance liabilities. We record liabilities for insurance claims during periods in which we have been insured under large deductible programs or have been self-insured for our medical and dental claims and workers’ compensation, general/product and automobile insurance liabilities. Maximum self-insured retention, including defense costs per occurrence, ranges from $0.5 to $1.0 million per individual claim for workers’ compensation and for general/product and automobile liability. The liabilities for prior and current estimated incurred losses are discounted to their present value based on expected loss payment patterns determined by independent actuaries. If these patterns were to deteriorate, we may be required to increase our self-insurance liabilities by recording additional insurance expense. Likewise, should these patterns improve, we may be required to reduce our self-insurance liabilities by recording a reduction in insurance expense. Total discounted insurance liabilities at December 26, 2001 and December 25, 2002 were $39.6 million and $36.3 million, respectively, reflecting a 5% discount rate for 2001 and 2002. The related undiscounted amounts at such dates were $44.7 million and $40.9 million, respectively.

      Impairment of long-lived assets. Our long-lived assets include property, goodwill (including reorganization value) and other intangible assets. We assess impairment of long-lived assets whenever changes or events indicate that the carrying value may not be recoverable. We assess impairment of restaurant-level assets based on the operating cash flows of the restaurant and our plans for restaurant closings. In performing our assessment, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record additional impairment charges. Impairment of goodwill (including reorganization value) and other intangible assets has historically been evaluated based on future discounted cash flows. See Note 2 to our consolidated financial statements and “Implementation of New Accounting Standards.”

      Restructuring and exit costs. As a result of changes in our organizational structure, we have recorded charges for restructuring and exit costs. These costs consist primarily of severance and outplacement costs for terminated employees and the costs of future obligations related to closed units or units identified for closure. In assessing the cost of future obligations related to closed units or units identified for closure, we make assumptions regarding the timing of units’ closures, amounts of future subleases, amounts of future property taxes and costs of closing the units. If these estimates or their related assumptions change in the future, we may be required to record additional exit costs or reduce exit costs previously recorded. See Note 4 to our consolidated financial statements and “Implementation of New Accounting Standards.”

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Denny’s Restaurant Operations

(a)	Total systemwide sales include sales from company-owned, franchised and licensed restaurants and is not a measure which has been determined in accordance with accounting principles generally accepted in the United States of America.
(b)	See EBITDA computations in “Selected Financial Data.”
(c)	Same-store sales include sales from restaurants that were open the same days in both the current year and prior year.
(d)	Prior year amounts have not been restated for 2002 comparable units.

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Unit Activity

2002 vs. 2001

Company Operations

      During 2002, we realized a 1.0% decline in same-store sales, comprised of a 2.8% decrease in guest counts and a 1.8% increase in guest check average. Company restaurant sales declined $90.6 million (9.5%) primarily due to a net 55-unit decrease in company-owned restaurants as a result of store closures and the sale of restaurants to franchisees.

      During 2002, we focused our attention on basic operational functions and improving hospitality in the restaurants. Our financial results improved during 2002 due to more efficient cost management in the restaurants, the closure of underperforming restaurants and reduced general and administrative expenses. As a result, total costs of company restaurant sales decreased $80.6 million (9.8%). As a percentage of company restaurant sales, total costs of company restaurant sales decreased to 86.0% from 86.3%. Specifically, product costs decreased to 23.9% from 25.0% resulting from lower commodity costs and improved food waste controls. Payroll and benefits increased to 42.1% from 40.3% due to increased restaurant staffing levels, wage rate increases and higher health benefit costs. Occupancy costs decreased to 5.7% from 5.9% primarily as a result of the closure of underperforming units. Other operating expenses decreased to 14.3% from 15.0% as a result of lower utility costs, lower repairs and maintenance expenses and lower legal settlement costs.

      Operating margins for company-owned restaurants were 14.0% of company restaurant sales ($120.4 million) for the year ended December 25, 2002, compared with 13.7% of company restaurant sales ($130.4 million) for the year ended December 26, 2001.

Franchise Operations

      Franchise and license revenues are the revenues received by Denny’s from its franchisees and include royalties, initial franchise fees and occupancy revenue related to restaurants leased or subleased to franchisees. The composition of the franchise portfolio and the nature of individual lease arrangements has a significant impact on franchise occupancy revenue, as well as the related franchise occupancy expense and franchise operating margin.

      Franchise and license revenue was $90.0 million for the year ended December 25, 2002, comprised of royalties and initial franchise fees of $56.0 million and occupancy revenue of $34.0 million, compared with $90.5 million for the year ended December 26, 2001, comprised of royalties and fees of $56.1 million and occupancy revenues of $34.4 million. The revenue decrease of $0.5 million resulted primarily from a decrease in occupancy revenues due to the decreased number of franchise restaurants. Additionally, a decrease in initial franchise fees due to reduced refranchising activity in 2002 was partially offset by an increase in royalties from existing franchise restaurants.

      Costs of franchise and license revenue include occupancy costs related to restaurants leased or subleased to franchisees and direct costs consisting primarily of payroll and benefit costs of franchise

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      Costs of franchise and license revenue were $28.6 million for the year ended December 25, 2002, comprised of occupancy costs of $22.6 million and other direct expenses of $6.0 million, compared with $32.3 million for the year ended December 26, 2001, comprised of occupancy costs of $20.3 million and other direct expenses of $12.0 million. Costs of franchise and license revenue decreased $3.7 million (11.4%) driven by a $6.8 million decrease in net marketing expense partially offset by a $2.3 million increase in rent expense. Additionally, prior year costs benefited from a net $0.9 million reduction in bad debt expense related to the collection of certain past due accounts. As a percentage of franchise and license revenues, these costs decreased to 31.7% for the year ended December 25, 2002 from 35.6% for the year ended December 26, 2001.

      Our franchising operating margins were 68.3% of franchise and license revenue ($61.4 million) for the year ended December 25, 2002 compared with 64.4% of franchise and license revenue ($58.3 million) for the year ended December 26, 2001.

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 decreased $16.9 million (25.3%) for the year ended December 25, 2002 compared with the year ended December 26, 2001. The year ended December 26, 2001 included approximately $1.6 million of nonrecurring senior management recruiting expenses. The remaining decrease resulted from organizational changes implemented during 2001 and 2002 and the reversal of annual bonus accruals during the fourth quarter of 2002 because bonus targets had not been met. Depreciation and amortization, including amortization of goodwill and other intangible assets with indefinite lives, decreased $41.1 million primarily as a result of the implementation of SFAS 142 relating to the discontinuance of amortization of goodwill (including reorganization value). See Notes 2 and 3 to our consolidated financial statements.

      Lower refranchising activity during the year ended December 25, 2002 resulted in a $4.2 million decrease in gains on refranchising and other, net. Approximately $8.2 million of gains recorded during 2002 were the result of sales of surplus properties compared to $4.3 million during 2001.

      During 2002, we recorded a $4.6 million asset impairment charge related to the identification of certain underperforming restaurants.

      Exit costs of $3.5 million recorded in 2002 primarily represent additional provisions for future rent obligations on Denny’s former corporate headquarters facility in California due to the bankruptcy of our most significant subtenant. For additional information concerning exit costs, see Note 4 to our consolidated financial statements.

      Operating income was $49.6 million for the year ended December 25, 2002 compared with a loss of $19.7 million for the year ended December 26, 2001.

      Interest expense, net for 2002 was comprised of $79.8 million of interest expense offset by $3.4 million of interest income compared with $79.7 million of interest expense offset by $6.5 million of interest income for 2001. Interest expense was relatively flat as the effects of lower borrowings under our credit facility were offset by higher deferred financing cost amortization related to our credit facility and higher interest expense related to discounted liabilities for exit costs. The decrease in interest income resulted from the repayment of the FRD credit facility.

      Other nonoperating income for the year ended December 25, 2002 primarily represents a gain of $32.9 million on the exchange of debt. For further information regarding our debt exchange, see Note 7 to the consolidated financial statements. As a result of the settlement of the remaining issues related to our

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      For the year ended December 25, 2002, we recorded a benefit from income taxes of $1.4 million. The benefit included $2.7 million related to the enactment of H.R. 3090, the Job Creation and Worker Assistant Act of 2002. See Note 9 to our consolidated financial statements. Excluding this benefit, we recorded a provision for income taxes of $1.3 million for the year ended December 25, 2002 compared with a provision for income taxes of $1.6 million for the year ended December 26, 2001. These provisions for income taxes primarily represent gross receipts based state and foreign income taxes which do not directly fluctuate in relation to changes in income (loss) before income taxes.

      As a result of the divestiture of FRD, we recorded a gain on disposal of discontinued operations of $56.6 million during the year ended December 25, 2002. See Note 14 to our consolidated financial statements. Additionally, during the year ended December 25, 2002, we recorded income from discontinued operations of $4.0 million as a result of the reversal of liabilities related to entities previously reported as discontinued operations.

      Net income was $68.1 million for the year ended December 25, 2002 compared with a net loss of $88.5 million for the year ended December 26, 2001 due to the factors noted above.

      EBITDA, a key internal measure described in “Selected Financial Data,” increased to $132.8 million in 2002 from $104.6 million in 2001 due to the factors noted above.

2001 vs. 2000

Company Operations

      Denny’s recorded 2.7% same-store sales growth for 2001 which was driven by a 1.7% increase in guest check average and higher guest traffic. However, company restaurant sales decreased $131.5 million (12.2%) due to a net 115-unit decrease in company-owned restaurants, partially offset by the increase in same-store sales. The decrease in company-owned restaurants resulted from the sale of restaurants to franchisees and store closures.

      Total costs of company restaurant sales decreased $111.1 million (11.9%), driven by the decrease in company-owned restaurants. As a percentage of company restaurant sales, product costs decreased to 25.0% from 26.0% resulting from a higher guest check average and reduced waste costs. Payroll and benefits increased to 40.3% from 39.5% due to increased staffing levels and wage rate increases. Our occupancy costs increased to 5.9% from 5.5%. The increase in occupancy costs as a percentage of restaurant sales was primarily due to adjustments of $3.5 million that reduced general liability insurance expense in 2000. Other operating expenses decreased to 15.0% from 15.1%, as the effects of higher utility rates and increased repair and maintenance activities were offset by lower advertising expenses.

      Operating margins for company-owned restaurants were 13.7% of company restaurant sales ($130.4 million) for 2001 compared with 14.0% of company restaurant sales ($150.8 million) for 2000.

Franchise Operations

      Franchise and licensing revenue was $90.5 million for 2001, comprised of royalties and fees of $56.1 million and occupancy revenue of $34.4 million, compared with $74.6 million for 2000, comprised of royalties and fees of $51.5 million and occupancy revenue of $23.1 million. Franchise and licensing revenue increased $15.9 million (21.4%) resulting from a net 42-unit increase in franchised and licensed restaurants, partially offset by a $3.3 million reduction in initial franchise fees due to reduced refranchising activity in 2001.

      Franchise costs were $32.3 million for 2001, comprised of occupancy costs of $20.3 million and other direct expenses of $12.0 million, compared with $31.1 million for 2000, comprised of occupancy costs of $14.1 million and other direct expenses of $17.0 million. Franchise restaurant costs increased $1.1 million (3.5%), driven by the increase in the number of franchise and licensed restaurants. As a percentage of

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      Our franchise operating margins were 64.4% of franchise and licensing revenue ($58.3 million) for 2001 compared with 58.2% of franchise and licensing revenue ($43.4 million) for 2000.

Other Operating Costs and Expenses

      General and administrative expenses, which relate to the support of both company and franchise operations, decreased $6.2 million (8.5%), resulting primarily from reductions in information systems costs of $6.0 million and other corporate overhead costs primarily related to workforce reductions of $4.5 million, offset by $1.9 million of additional legal costs related to the disposition of FRD and a $2.5 million increase in payroll tax expense resulting from an adjustment recorded in 2000. The decrease in amortization of goodwill (including reorganization value) and other intangible assets with indefinite lives from 2000 resulted from a reduction of reorganization value totaling approximately $27.8 million related to the reversals of certain income tax liabilities recorded in the fourth quarter of 2000 and during 2001. Depreciation and other amortization decreased $16.1 million primarily as a result of fewer company-owned units. Lower refranchising activity in 2001 resulted in a $37.9 million decrease in refranchising gains, primarily due to the tightening in financing markets and our strict standards for new franchisees.

      Restructuring charges and exit costs of $16.9 million were recorded in 2001, of which $11.9 million related to management’s plan to close underperforming Denny’s restaurants. The remaining $5.0 million of restructuring charges related to management’s elimination of approximately 90 out-of-restaurant support staff positions in November 2001. For additional information concerning these restructuring charges, see Note 4 to our consolidated financial statements.

      In 2001, we recorded asset impairment charges of $13.6 million related to the identification of certain underperforming restaurants, including the stores identified for closure as described above.

      Operating loss was $19.7 million for 2001 compared with $0.3 million for 2000.

      Interest expense, net, for 2001 was comprised of $79.7 million of interest expense offset by $6.5 million of interest income compared with $86.9 million of interest expense offset by $5.1 million of interest income for 2000. Lower interest expense is due to a $11.1 million decrease primarily from the repayment of the Denny’s mortgage notes and other debt during 2000, offset by a $3.9 million increase in expense related to borrowings under our credit facility. The increase in interest income of $1.4 million related to $5.0 million interest income from the FRD credit facility, offset by a $3.6 million decrease related to lower cash balances in 2001.

      For the year ended December 26, 2001, we recorded a provision for income taxes of 1.7% for 2001 compared with a provision reflecting an approximate rate of 2.2% for 2000. These provisions for income taxes primarily represent gross receipts based state and foreign income taxes which do not directly fluctuate in relation to changes in income (loss) before income taxes.

      The consolidated statements of operations and cash flows reflect FRD as discontinued operations in accordance with Accounting Principles Board Opinion No. 30, or APB 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” See Note 14 to our consolidated financial statements.

      As a result of the settlement of the remaining issues related to our former information systems outsourcing contract with IBM, approximately $7.8 million of capital lease obligations were forgiven and a gain was recorded as a component of other nonoperating income in 2001.

      Net loss was $88.5 million for 2001 compared with a net loss of $98.0 million for 2000 due to the factors noted above.

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      EBITDA, a key internal measure described in “Selected Financial Data,” decreased to $104.6 million in 2001 from $153.3 million in 2000 due to the factors noted above.

Liquidity and Capital Resources

      In December 2002, we entered into a new senior secured credit facility, or credit facility, which provides Denny’s with a working capital and letter of credit facility of up to $125 million. At December 25, 2002, we had working capital advances of $46.7 million and letters of credit outstanding of $48.8 million under the credit facility, leaving a net availability of $29.5 million. At March 21, 2003, we had working capital advances of $63.7 million and letters of credit outstanding of $48.4 million under the credit facility, leaving a net availability of $12.9 million. Advances under the credit facility accrue interest at a variable rate (approximately 6.4% at December 25, 2002) based on the prime rate or an adjusted Eurodollar rate.

      We continue to monitor our cash flow and liquidity needs. Although we believe that funds from operations and amounts available under our working capital facility will be adequate to cover those needs, we may seek additional sources of funds including additional financing sources and continued selected asset sales, 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.

      The credit facility matures on December 20, 2004. The credit facility is generally secured by liens on the stock of the subsidiaries of Denny’s Corporation, accounts receivable, intellectual property, cash and cash accounts. In addition, the facility is secured by first-priority mortgages on 247 owned restaurant properties and our corporate headquarters located in Spartanburg, South Carolina. Denny’s Corporation and its subsidiaries are guarantors under the credit facility. The credit facility contains certain financial covenants (i.e., minimum EBITDA requirements, total debt to EBITDA ratio requirements and total senior secured debt to EBITDA requirements), negative covenants, conditions precedent, events of default and other terms, conditions and provisions customarily found in credit agreements for leveraged financings. At December 25, 2002, we were in compliance with the terms of the credit facility.

      The following table sets forth a calculation of our cash provided by (used in) operations, for the periods indicated:

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      Our future contractual obligations and commitments at December 25, 2002 consist of the following:

(a)	In addition to scheduled maturities of principal, approximately $63.0 million of cash will be required in 2003 to meet interest payments on long-term debt and capital lease obligations.
(b)	In January 2000, we entered into an agreement with Affiliated Computer Services, Inc., or ACS, to manage and operate our information technology for our corporate headquarters, restaurants and field management. In August 2002, we brought all services provided by ACS, except help desk services, in-house to our corporate headquarters. Our agreement with ACS expires on April 30, 2003 at which time the help desk services will be brought in-house to our corporate headquarters.

      In addition to the obligations and commitments listed above, we have purchase agreements with various vendors for certain products and supplies, principally PFC/MBM (see “Business — Raw Materials Sources and Availability”). These agreements do not obligate the Company to the purchase of any specific volumes; however, the products named in the agreements must be purchased from the specified supplier unless they are unable to do so within a reasonable period.

      Our principal capital requirements have been largely associated with remodeling and maintaining our existing restaurants and facilities. During 2002, our capital expenditures were $42.9 million. Of that amount, approximately $1.2 million was financed through capital leases. Capital expenditures during 2003 are expected to total $35 million to $45 million; however, we are not committed to spending this amount and could spend less if circumstances require.

      At December 25, 2002, our working capital deficit was $119.1 million compared to $162.6 million at December 26, 2001. Excluding net liabilities of discontinued operations at December 26, 2001, our working capital deficit was $119.1 million at December 25, 2002 compared with $147.5 million at December 26, 2001. The working capital deficit decrease of $28.4 million resulted from the use of cash on hand and borrowings under the credit facility to satisfy current liabilities and the reduction of company-owned units from store closures. We are able to operate with a substantial working capital deficit because (1) restaurant operations and most food service operations are conducted primarily on a cash (and cash equivalent) basis with a low level of accounts receivable, (2) rapid turnover allows a limited investment in inventories, and (3) accounts payable for food, beverages and supplies usually become due after the receipt of cash from the related sales.

Implementation of New Accounting Standards

      In July 2001, the FASB issued SFAS 142, “Goodwill and Other Intangible Assets,” which became effective for us on December 27, 2001, the first day of our 2002 fiscal year. SFAS 142 requires us, among other things, to discontinue goodwill amortization, including the amortization of reorganization value. In addition, the standard provides for reclassifying certain intangibles as goodwill, reassessing the useful lives of intangibles, reclassifying certain intangibles out of previously reported goodwill and identifying reporting units for purposes of assessing potential future impairments of goodwill. See Note 3 to our consolidated financial statements for a discussion of the effects of adopting this new accounting standard.

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      In October 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” related to the disposal of a segment of a business. SFAS 144 became effective for us on December 27, 2001, the first day of our 2002 fiscal year. Our adoption of SFAS 144 had no impact on our financial position or results of operations.

      In April 2002, the FASB issued SFAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statements No. 13, and Technical Corrections.” Among other things, SFAS 145 eliminates FASB Statement No. 4, or SFAS 4, “Reporting Gains and Losses from Extinguishment of Debt”. Under SFAS 4, all gains and losses from extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item, net of any related income tax effect. As a result of the elimination of SFAS 4, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The provisions of SFAS 145 related to the rescission of SFAS 4 are effective for fiscal years beginning after May 15, 2002. We early adopted SFAS 145 in the second quarter of 2002. As a result, we reclassified a $7.8 million extraordinary item recorded in 2001 to our nonoperating income during 2002. In addition, our gains from extinguishment of debt in 2002 were also reported in nonoperating income.

      In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement replaces Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a Restructuring)”. The principal difference between SFAS 146 and EITF 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. A fundamental conclusion reached by the Board in this Statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. SFAS 146 eliminates the definition and requirements for recognition of exit costs in EITF 94-3. This statement also establishes that fair value is the objective for initial measurement of the liability. The adoption of this statement is not expected to have a material impact on our financial position and results of operations; however, the timing of the recognition of future costs under SFAS 146 will be substantially different than the timing under EITF 94-3. SFAS 146 is effective for exit and disposal activities initiated after December 31, 2002.

      FASB Interpretation No. 45, or FIN 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” was issued in November 2002. FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 is not expected to have a material impact on the Company’s consolidated financial statements.

      In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123.” SFAS 148 amends SFAS 123, “Accounting for Stock Based Compensation” and provides for alternative methods for accounting for a change by registrants to the fair value method of accounting for stock-based compensation. Additionally,

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Interest Rate Risk

      We have exposure to interest rate risk related to certain instruments entered into for other than trading purposes. Specifically, borrowings under the credit facility bear interest at a variable rate based on the prime rate or an adjusted Eurodollar rate. A 100 basis point change in the credit facility interest rate (approximately 6.4% at December 25, 2002) would cause the interest expense for 2003 to change by approximately $0.5 million. This computation is determined by considering the impact of hypothetical interest rates on our variable long-term debt at December 25, 2002. However, the nature and amount of our borrowings under the credit facility may vary as a result of future business requirements, market conditions and other factors.

      Our other outstanding long-term debt bears fixed rates of interest. The estimated fair value of our fixed rate long-term debt (excluding capital leases) was approximately $413.3 million at December 25, 2002. This computation is based on market quotations for the same or similar debt issues or the estimated borrowing rates available to us. The difference between the estimated fair value of long-term debt compared to its historical cost reported in our consolidated balance sheets at December 25, 2002 relates primarily to market quotations for our 11 1/4% Senior Notes.

Commodity Price Risk

      We purchase certain food products such as beef, poultry, pork and coffee, and utilities such as gas and electricity, which are affected by commodity pricing and are, therefore, subject to price volatility caused by weather, production problems, delivery difficulties and other factors that are outside our control and which are generally unpredictable. Changes in commodity prices affect us and our competitors generally and often simultaneously. In general, we purchase food products and utilities based upon market prices established with vendors. Although many of the items purchased are subject to changes in commodity prices, certain purchasing arrangements are structured to contain features that minimize price volatility by establishing price ceilings and/or floors. We use these types of purchase arrangements to control costs as an alternative to using financial instruments to hedge commodity prices. In many cases, we believe we will be able to address commodity cost increases which are significant and appear to be long-term in nature by adjusting our menu pricing or changing our product delivery strategy. However, competitive circumstances could limit such actions and, in those circumstances, increases in commodity prices could lower our margins. Because of the often short-term nature of commodity pricing aberrations and our ability to change menu pricing or product delivery strategies in response to commodity price increases, we believe that the impact of commodity price risk is not significant.

      We have established a policy to identify, control and manage market risks which may arise from changes in interest rates, commodity prices and other relevant rates and prices. We do not use derivative instruments for trading purposes, and no interest rate or other financial derivatives were in place at December 25, 2002.

      See Index to Financial Statements which appears on page F-1 herein.

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Form 11-K Information

      Pursuant to Rule 15d-21 promulgated under the Securities Exchange Act of 1934, as amended, we will file as an amendment to this Annual Report on Form 10-K the information, financial statements and exhibits required by Form 11-K with respect to the Denny’s 401(k) Plans.

      None.

PART III

      Information required by this item with respect to our directors and compliance by our directors, executive officers and certain beneficial owners of our common stock with Section 16(a) of the Securities Exchange Act of 1934 is furnished by incorporation by reference to all information under the captions entitled “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the proxy statement (to be filed later) in connection with Denny’s Corporation Annual Meeting of the Shareholders to be held on May 29, 2003. The information required by this item related to our executive officers appears in Item I of Part I of this report under the caption “Executive Officers of the Registrant.”

      The information required by this item is furnished by incorporation by reference to all information under the captions entitled “Executive Compensation” and “Election of Directors — Compensation of Directors” in the proxy statement.

      The information required by this item is furnished by incorporation by reference to all information under the caption “General — Equity Security Ownership” in the proxy statement.

Certain Transactions

      The information required by this item is furnished by incorporation by reference to all information under the caption “Certain Transactions” in the proxy statement.

Information Regarding Certain Indebtedness

      The following information regarding certain of our debt instruments does not purport to be complete and is qualified in its entirety by reference to the documents governing such debt, including the definitions of certain terms therein, which have been filed as exhibits to filings of Denny’s with the Commission. Whenever particular provisions of such documents are referred to herein, such provisions are incorporated herein by reference, and the statements are qualified in their entirety by such reference. See Note 7 to our consolidated financial statements for additional information regarding our indebtedness and the terms thereof (including indebtedness under the credit facility and certain mortgage financings).

      At December 25, 2002, Denny’s Corporation had outstanding $379.0 million aggregate principal amount of 11 1/4% Senior Notes, or 11 1/4% Notes. The 11 1/4% Notes are senior unsecured obligations of Denny’s Corporation and rank pari passu in right of payment to all senior indebtedness of Denny’s Corporation, including the obligations of Denny’s Corporation under the credit facility. However, the

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      The 11 1/4% Notes are redeemable, in whole or in part, at the option of Denny’s at any time on or after January 15, 2003, at a redemption price equal to 105.625% of the principal amount thereof to and including January 14, 2004, at 103.750% of the principal amount thereof to and including January 14, 2005, at 101.875% of the principal amount thereof to and including January 14, 2006, and thereafter at 100% of the principal amount thereof, together in each case with accrued interest.

      On April 15, 2002, we exchanged $88.1 million aggregate principal amount of Denny’s Corporation’s 11 1/4% Notes for $70.4 million aggregate principal amount of 12 3/4% Senior Notes due 2007, or 12 3/4% Notes. During the fourth quarter of 2002, we closed a series of privately negotiated transactions for the exchange of an additional $62.5 million aggregate principal amount of 11 1/4% Notes for $50.0 million aggregate principal amount of 12 3/4% Notes.

      At December 25, 2002, Denny’s Corporation and Denny’s Holdings, Inc. have outstanding $120.4 million aggregate principal amount of Denny’s Corporation’s and Denny’s Holdings, Inc.’s 12 3/4% Notes. Denny’s Corporation and its wholly owned subsidiary, Denny’s Holdings, Inc. (the direct parent of Denny’s restaurant operating subsidiaries), are jointly obligated with respect to the 12 3/4% Notes; therefore, the 12 3/4% Notes are structurally senior to the 11 1/4% Notes. The 12 3/4% Notes are senior unsecured obligations of Denny’s Corporation and Denny’s Holdings, Inc. and rank pari passu in right of payment to all senior indebtedness of Denny’s Corporation and Denny’s Holdings, Inc., including the obligations of Denny’s Corporation and Denny’s Holdings, Inc. under the credit facility. However, the 12 3/4% Notes are effectively subordinated to Denny’s secured indebtedness, including indebtedness under the credit facility to the extent of the lenders’ security interests in Denny’s assets, and structurally subordinated to indebtedness of the subsidiaries of Denny’s Holdings, Inc. under the credit facility. Interest on the 12 3/4% Notes is payable semi-annually on March 31 and September 30 of each year. They will mature on September 30, 2007.

      The 12 3/4% Notes will be redeemable, in whole or in part, at the option of Denny’s at any time on or after September 30, 2004, at 106.375% of their principal amount thereof to and including September 30, 2006, and thereafter at 100% of the principal amount thereof, together in each case with accrued interest.

      Within the 90 days prior to the date of this report, we carried out an evaluation (under the supervision and with the participation of management, including our President and Chief Executive Officer, Nelson J. Marchioli, and our Senior Vice President and Chief Financial Officer, Andrew F. Green) of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended. Based upon the evaluation, Messrs. Marchioli and Green each concluded that disclosure controls and procedures are effective in timely alerting them to material information required to be included in Denny’s Corporation’s periodic SEC filings.

      There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART IV

      (a)(1) Financial Statements: See the Index to Financial Statements which appears on page F-1 hereof.

      (2) Financial Statement Schedules: No schedules are filed herewith because of the absence of conditions under which they are required or because the information called for is in our consolidated financial statements or notes thereto appearing elsewhere herein.

      (3) Exhibits: Certain of the exhibits to this Report, indicated by an asterisk, are hereby incorporated by reference to other documents on file with the Commission with which they are physically filed, to be a part hereof as of their respective dates.