Depreciation and amortization expense decreased by $1.4 million compared with the prior year quarter, primarily as a result of the sale of restaurants over the past two years. Net operating gains, losses and other charges, which reflect restructuring charges, exit costs, impairment charges and gains or losses on the sale of assets, increased $3.6 million in the quarter. The increase was primarily the result of the sale of more company-owned units to franchisees.
Interest expense decreased $1.9 million to $3.0 million as a result of a $39.2 million reduction in total gross debt over the last 12 months and lower interest rates under the refinanced credit facility.
In the second quarter, the provision for income taxes increased $2.8 million, primarily due to a higher effective tax rate of 41.1% compared to 4.8% effective tax rate in the prior year quarter. The change in the effective tax rate compared to the prior year resulted from the release of a substantial portion of the valuation allowance on certain deferred tax assets based on our improved historical and projected pre-tax income. Due to the use of net operating loss and tax credit carryforwards, the Company only paid $1.2 million in cash taxes in the second quarter.
Denny’s net income was $4.6 million for the second quarter 2012, or $0.05 per diluted share, compared with prior year period net income of $8.1 million, or $0.08 per diluted share. Net income was impacted by the refinancing of our credit facility which resulted in a charge to other nonoperating expense of $7.9 million for the unamortized portion of deferred financing costs and original issue discount related to the prior facility, and portion of the fees related to the new facility. Adjusted Income Before Taxes*, Denny’s metric for earnings guidance, increased 34.6% to $12.9 million compared with the prior year quarter Adjusted Income Before Taxes* of $9.6 million.