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Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): August 10, 2017

 

 

DineEquity, Inc.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware   001-15283   95-3038279
(State or other jurisdiction
of incorporation or organization)
  (Commission File No.)   (I.R.S. Employer
Identification No.)
450 North Brand Boulevard, Glendale, California   91203-2306
(Address of principal executive offices)   (Zip Code)

(818) 240-6055

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On August 10, 2017, DineEquity, Inc., a Delaware corporation (the “Corporation”), issued a press release announcing its second quarter 2017 financial results. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information contained in this Item 2.02, including the related information set forth in the press release attached hereto as Exhibit 99.1 and incorporated by reference herein, is being “furnished” and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or into any filing or other document pursuant to the Exchange Act, except as otherwise expressly stated in any such filing.

Item 7.01 Regulation FD Disclosure.

The press release referenced in Item 2.02 of this Current Report on Form 8-K also includes information concerning the Corporation’s 2017 financial outlook. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information contained in this Item 7.01, including the related information set forth in the press release attached hereto as Exhibit 99.1 and incorporated by reference herein, is being “furnished” and shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act or otherwise. The information in this Item 7.01 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or into any filing or other document pursuant to the Exchange Act, except as otherwise expressly stated in any such filing.

 

Item 9.01. Financial Statements and Exhibits.

(d)    Exhibits.

 

Exhibit
Number

  

Description

99.1    Press Release Regarding Second Quarter 2017 Financial Results issued by the Corporation on August 10, 2017.


SIGNATURES

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

 

Date: August 10, 2017   DINEEQUITY, INC.
  By:  

/s/ Greggory H. Kalvin

   

Greggory H. Kalvin

Interim Chief Financial Officer and Senior Vice President, Corporate Controller


Exhibit Index

 

Exhibit
Number

  

Description

99.1    Press Release Regarding Second Quarter 2017 Financial Results issued by the Corporation on August 10, 2017.
EX-99.1

Exhibit 99.1

 

LOGO    LOGO    LOGO

 

 

News Release

Investor Contact

Ken Diptee

Executive Director, Investor Relations

DineEquity, Inc.

818-637-3632

Media Contact

Patrick Lenow

Vice President, Communications

DineEquity, Inc.

818-637-3122

DineEquity, Inc. Reports Second Quarter Fiscal 2017 Results

 

Second Quarter 2017 Summary

 

    GAAP EPS of $1.18

 

    Adjusted EPS (Non-GAAP) of $1.30

 

    Domestic system-wide comparable same-restaurant sales declined 2.6% at IHOP and declined 6.2% at Applebee’s

 

First Six Months of Fiscal 2017 Summary

 

    GAAP EPS of $1.98

 

    Adjusted EPS (Non-GAAP) of $2.51

 

    Domestic system-wide comparable same-restaurant sales declined 2.1% at IHOP and declined 7.0% at Applebee’s

 

    Generated cash from operating activities of approximately $20.9 million and adjusted free cash flow (Non-GAAP) of approximately $19.2 million

GLENDALE, Calif., August 10, 2017 — DineEquity, Inc. (NYSE: DIN), the parent company of Applebee’s Neighborhood Grill & Bar® and IHOP® restaurants, today announced financial results for the second quarter of fiscal 2017.

“We are investing in the empowerment of our brands by improving overall franchisee financial health, closing underperforming restaurants and enhancing the supply chain. We are focusing on operations and elevating the guest experience, whether in our restaurants or off-premise. We believe 2017 will be a transitional year for Applebee’s and we are making the necessary investments for overall long-term brand health and expect to see improvement over the next year,” said Richard J. Dahl, Chairman and interim Chief Executive Officer of DineEquity, Inc.


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Mr. Dahl added, “IHOP remains on solid ground, despite soft sales this quarter. I am optimistic about the growth in both effective franchise restaurants and system-wide sales. IHOP is currently rolling out initiatives to address the convenience needs of our guests, which are inclusive of online ordering as well as accelerating tests for delivery and development of an IHOP mobile application. We believe these will create enhanced revenue channels.”

Second Quarter of Fiscal 2017 Financial Highlights     

 

    GAAP net income available to common stockholders was $20.9 million for the second quarter of fiscal 2017, or earnings per diluted share of $1.18. This compares to net income available to common stockholders of $26.4 million, or earnings per diluted share of $1.45, for the second quarter of fiscal 2016. The decline in GAAP net income for the second quarter of 2017 compared to the same period of 2016 was mainly due to lower gross profit and higher income tax expense. The decrease in gross profit was due to a 6.2% decline in Applebee’s domestic system-wide comparable same-restaurant sales, an increase in bad debt expense, restaurant closures and a reduction in revenue recognized due to the collectability of Applebee’s franchisee royalties. These items were partially offset by a larger gain on the disposition of assets in the second quarter of 2017 compared to the same period of 2016. The impact of lower net income on earnings per diluted share was partially mitigated by fewer weighted average diluted shares outstanding for the second quarter of 2017 compared to the second quarter of 2016. Our effective tax rate for the second quarter of 2017 was 46.5% compared to 32.5% for the same quarter of 2016 primarily due to an increase in unrecognized tax benefits for deductions related to internal software development and the impact of new accounting guidance for share-based payments.

 

    Adjusted net income available to common stockholders was $23.0 million, or adjusted earnings per diluted share of $1.30, for the second quarter of fiscal 2017. This compares to $28.8 million, or adjusted earnings per diluted share of $1.59, for the same period of fiscal 2016. The decrease in adjusted net income was mainly due to lower gross profit, as explained in the preceding paragraph. The impact of lower adjusted net income on adjusted earnings per diluted share was partially mitigated by fewer weighted average diluted shares outstanding. (See “Non-GAAP Financial Measures” below.)

 

    General and administrative expenses were $37.4 million for the second quarter of fiscal 2017. This compares to approximately $36.5 million for the same quarter of fiscal 2016. The slight increase was mainly due to higher costs for professional services associated with investments in Applebee’s stabilization initiatives, partially offset by a decrease in personnel-related costs.                

First Six Months of Fiscal 2017 Financial Highlights

 

   

GAAP net income available to common stockholders was $35.0 million for the first six months of fiscal 2017, or earnings per diluted share of $1.98. This compares to net income available to common stockholders of $51.6 million, or earnings per diluted share of $2.82, for the first six months of fiscal 2016. The decrease in GAAP net income was primarily due to lower gross profit.


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The decrease in gross profit was due to a 7.0% decline in Applebee’s domestic system-wide comparable same-restaurant sales, an increase in bad debt expense as well as restaurant closures and a reduction in revenue recognized due to the collectability of Applebee’s franchisee royalties. In addition, general and administrative expenses increased for the first six months of 2017 compared to the same period of 2016. These items were partially offset by a gain on the disposition of assets in the first six months of 2017 compared to a loss in the same period of 2016. The impact of lower net income on earnings per diluted share was partially mitigated by fewer weighted average diluted shares outstanding for the first six months of 2017 compared to the same period of 2016.    

 

    Adjusted net income available to common stockholders was $44.6 million, or adjusted earnings per diluted share of $2.51, for the first six months of fiscal 2017. This compares to $58.0 million, or adjusted earnings per diluted share of $3.17, for the first six months of fiscal 2016. The decrease in adjusted net income was mainly due to lower gross profit, as explained in the preceding paragraph. The impact of lower adjusted net income on adjusted earnings per diluted share was partially offset by fewer weighted average diluted shares outstanding. (See “Non-GAAP Financial Measures” below.)

 

    General and administrative expenses were $87.7 million the first six months of fiscal 2017 compared to $75.9 million for the same period of fiscal 2016. The increase was primarily due to approximately $9 million of non-recurring cash severance and equity compensation charges incurred in the first quarter of 2017 related to the separation of our previous chief executive officer and higher costs for professional services associated with investments in Applebee’s stabilization initiatives, partially offset by a decline in recruiting and relocation costs as well as travel costs.

 

    Cash flows from operating activities were $20.9 million for the first six months of fiscal 2017 compared to $53.9 million for the first six months of fiscal 2016. The decline was due to lower net income and unfavorable changes in net working capital. The unfavorable variance in working capital changes was mainly due to the timing of payments related to advertising funds. Adjusted free cash flow was $19.2 million for the first six months of fiscal 2017, compared to $56.4 million for the first six months of fiscal 2016. (See “Non-GAAP Financial Measures” below.)

Same-Restaurant Sales Performance

Second Quarter of Fiscal 2017

 

    IHOP’s domestic system-wide comparable same restaurant sales declined 2.6% for the second quarter of 2017.

 

    Applebee’s domestic system-wide comparable same-restaurant sales declined 6.2% for the second quarter of 2017.

First Six Months of Fiscal 2017

 

    IHOP’s domestic system-wide comparable same restaurant sales decreased 2.1% for the first six months of fiscal 2017.


DineEquity, Inc.

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    Applebee’s domestic system-wide comparable same-restaurant sales decreased 7.0% for the first six months of fiscal 2017.

Financial Performance Guidance for Fiscal 2017

The following projections for fiscal 2017 are based on management’s expectations as of August 10, 2017. DineEquity reiterates its financial performance guidance for fiscal 2017 contained in the press release issued on May 2, 2017 and the Form 8-K filed on the same day, except for the revisions noted below.

 

    Revised expectations for Applebee’s domestic system-wide same-restaurant sales performance to range between negative 6.0% and negative 8.0%. This compares to previous expectations of between negative 4.0% and negative 8.0%.

 

    Revised expectations for IHOP’s comparable same-restaurant sales performance to range between negative 1.0% and negative 3.0%. This compares to previous expectations of between 0.0% to positive 3.0%.

 

    Reiterates expectations for Applebee’s franchisees to develop between 20 and 30 new restaurants globally, the majority of which are expected to be international openings.

 

    Revised expectations for Applebee’s closures to range between approximately 105 and 135 restaurants. This compares to previous expectations for closures of approximately 40 to 60 restaurants. The expected closures will be based on several criteria, including franchisee profitability, operational results and meeting our brand quality standards.

 

    Revised expectations for IHOP franchisees and its area licensee to develop between 80 and 95 restaurants globally, the majority of which are expected to be domestic openings. This compares to previous expectations for development of 75 to 90 restaurants globally.

 

    Revised expectations for IHOP closures to range between 20 and 25 restaurants. This compares to previous expectation for the closure of approximately 18 restaurants.

 

    Revised expectations for Franchise segment profit to be between $302 million and $314 million. This compares to previous expectations of between $323 million and $338 million. This downward revision is primarily due to an expected contribution in the second half of 2017 of approximately $8 million to the Applebee’s national advertising fund to mitigate the decline in franchisee contributions, additional expected reserves for collectability of Applebee’s royalties, the revised guidance for both IHOP’s comparable same-restaurant sales and Applebee’s restaurant closures discussed above.

 

    Reiterates expectations for the Rental and Financing segments to generate approximately $38 million in combined profit.

 

   

Revised expectations for general and administrative expenses to range between $166 million and $172 million, including non-cash stock-based compensation expense and depreciation of approximately $22 million. This compares to previous expectations for general and administrative


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expenses to range between $170 million and $177 million. The revised range is inclusive of approximately $10 million for Applebee’s stabilization initiatives in fiscal 2017, of which we expect that a substantial amount will not recur. The range also includes approximately $9 million of non-recurring cash severance and equity compensation charges incurred in the first quarter of fiscal 2017.

 

    Reiterates expectations for interest expense to be approximately $62 million. Approximately $3 million is projected to be non-cash interest expense.

 

    Reiterates expectations for weighted average diluted shares outstanding to be approximately 18 million shares.

 

    Revised expectation for the income tax rate to be approximately 40%. This compares to previous expectations for approximately 38%. The expected increase is primarily due to the impact of new accounting guidance for share-based payments.

 

    Revised expectations for cash flows provided by operating activities to range between $80 million and $90 million. This compares to previous expectations of between $98 million and $108 million. The expected decline compared to fiscal 2016 is primarily due to projections for lower segment profit, partially offset by lower general and administrative expenses as discussed above.

 

    Revised expectations for capital expenditures to be roughly $14 million, an increase of $2 million from the previous guidance.

 

    Revised expectations for adjusted free cash flow (See “Non-GAAP Financial Measures” below) to range between $76 million and $86 million. This compares to previous expectations of between $96 million and $106 million.

2017 Adjusted Free Cash Flow (Non-GAAP) Guidance Table

 

     (In millions)  

Cash flows from operations

   $ 80 – 90  

Approximate net receipts from notes and equipment contracts receivable

     10  

Approximate capital expenditures

     (14)  
  

 

 

 

Adjusted free cash flow (Non-GAAP)

     $76 - 86  

Investor Conference Call Today

DineEquity will host a conference call to discuss its results on the same day at 8:00 a.m. Pacific Time. To participate on the call, please dial (888) 771-4371 and reference passcode 45293838. International callers, please dial (847) 585-4405 and reference passcode 45293838. A live webcast of the call will be available at www.dineequity.com, and may be accessed by visiting Events and Presentations on the site’s Investors section. Participants should allow approximately ten minutes prior to the call’s start time to visit the site and download any streaming media software needed to listen to the webcast. A


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telephonic replay of the call may be accessed from 10:30 a.m. Pacific Time on August 10, 2017 through 8:59 p.m. Pacific Time on August 17, 2017 by dialing (888) 843-7419 and referencing passcode 45293838#. International callers, please dial (630) 652-3042 and reference passcode 45293838#. An online archive of the webcast will also be available on Events and Presentations under the Investors section of DineEquity’s website.

About DineEquity, Inc.

Based in Glendale, California, DineEquity, Inc. (NYSE: DIN), through its subsidiaries, franchises restaurants under both the Applebee’s Neighborhood Grill & Bar and IHOP brands. With more than 3,700 restaurants combined in 19 countries and approximately 400 franchisees, DineEquity is one of the largest full-service restaurant companies in the world. For more information on DineEquity, visit the Company’s website located at www.dineequity.com.

Forward-Looking Statements

Statements contained in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. These factors include, but are not limited to: the effect of general economic conditions; the Company’s indebtedness; risk of future impairment charges; trading volatility and the price of the Company’s common stock; the Company’s results in any given period differing from guidance provided to the public; the highly competitive nature of the restaurant business; the Company’s business strategy failing to achieve anticipated results; risks associated with the restaurant industry; risks associated with locations of current and future restaurants; rising costs for food commodities and utilities; shortages or interruptions in the supply or delivery of food; ineffective marketing and guest relationship initiatives and use of social media; changing health or dietary preferences; our engagement in business in foreign markets; harm to our brands’ reputation; litigation; fourth-party claims with respect to intellectual property assets; environmental liability; liability relating to employees; failure to comply with applicable laws and regulations; failure to effectively implement restaurant development plans; our dependence upon our franchisees; concentration of Applebee’s franchised restaurants in a limited number of franchisees; credit risk from IHOP franchisees operating under our previous business model; termination or non-renewal of franchise agreements; franchisees breaching their franchise agreements; insolvency proceedings involving franchisees; changes in the number and quality of franchisees; inability of franchisees to fund capital expenditures; heavy dependence on information technology; the occurrence of cyber incidents or a deficiency in our cybersecurity; failure to execute on a business continuity plan; inability to attract and retain talented employees; risks associated with retail brand initiatives; failure of our internal controls; and other factors discussed from time to time in the Company’s Annual and Quarterly Reports on Forms 10-K and 10-Q and in the Company’s other filings with the Securities and Exchange Commission. The forward-looking statements contained in this release are made as of the date hereof and the Company assumes no obligation to update or supplement any forward-looking statements.


DineEquity, Inc.

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Non-GAAP Financial Measures

This news release includes references to the Company’s non-GAAP financial measure “adjusted net income available to common stockholders (Adjusted EPS)” and “Adjusted free cash flow.” “Adjusted EPS” is computed for a given period by deducting from net income or loss available to common stockholders for such period the effect of any closure and impairment charges, any gain or loss related to debt extinguishment, any intangible asset amortization, any non-cash interest expense, any gain or loss related to the disposition of assets, and other items deemed not reflective of current operations. This is presented on an aggregate basis and a per share (diluted) basis. “Adjusted free cash flow” for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable, less capital expenditures. Management uses adjusted free cash flow in its periodic assessments of, among other things, the amount of cash dividends per share of common stock and repurchases of common stock and we believe it is important for investors to have the same measure used by management for that purpose. Adjusted free cash flow does not represent residual cash flow available for discretionary purposes. Management may use certain of these non-GAAP financial measures along with the corresponding U.S. GAAP measures to evaluate the performance of the business and to make certain business decisions. Additionally, adjusted EPS is one of the metrics used in determining payouts under the Company’s annual cash incentive plan. Management believes that these non-GAAP financial measures provide additional meaningful information that should be considered when assessing the business and the Company’s performance compared to prior periods and the marketplace. Adjusted EPS and adjusted free cash flow are supplemental non-GAAP financial measures and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.


DineEquity, Inc.

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DineEquity, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2017     2016     2017     2016  

Revenues:

        

Franchise and restaurant revenues

   $ 122,987     $ 126,989     $ 246,565     $ 256,775  

Rental revenues

     30,124       30,830       60,589       62,239  

Financing revenues

     2,088       2,439       4,219       4,768  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     155,199       160,258       311,373       323,782  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

        

Franchise and restaurant expenses

     40,669       39,707       81,676       80,576  

Rental expenses

     22,681       23,030       45,347       46,261  

Financing expenses

     —         146       —         146  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     63,350       62,883       127,023       126,983  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     91,849       97,375       184,350       196,799  

General and administrative expenses

     37,366       36,511       87,671       75,935  

Interest expense

     15,780       15,383       31,143       30,749  

Amortization of intangible assets

     2,500       2,500       5,000       4,980  

Closure and impairment charges, net

     2,701       3,291       2,918       3,726  

(Gain) loss on disposition of assets

     (6,243     (48     (6,352     566  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax provision

     39,745       39,738       63,970       80,843  

Income tax provision

     (18,465     (12,909     (28,327     (28,471
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 21,280     $ 26,829     $ 35,643     $ 52,372  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders:

        

Net income

   $ 21,280     $ 26,829     $ 35,643     $ 52,372  

Less: Net income allocated to unvested participating restricted stock

     (342     (384     (602     (766
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 20,938     $ 26,445     $ 35,041     $ 51,606  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders per share:

        

Basic

   $ 1.18     $ 1.46     $ 1.98     $ 2.84  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 1.18     $ 1.45     $ 1.98     $ 2.82  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

        

Basic

     17,719       18,085       17,707       18,173  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     17,725       18,188       17,721       18,280  
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per common share

   $ 0.97     $ 0.92     $ 1.94     $ 1.84  
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends paid per common share

   $ 0.97     $ 0.92     $ 1.94     $ 1.84  
  

 

 

   

 

 

   

 

 

   

 

 

 


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DineEquity, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

     June 30,
2017
    December 31,
2016
 
     (Unaudited)        
Assets             

Current assets:

    

Cash and cash equivalents

   $ 112,346     $ 140,535  

Receivables, net

     97,487       141,389  

Restricted cash

     31,411       30,256  

Prepaid gift card costs

     37,364       47,115  

Prepaid income taxes

     7,458       2,483  

Other current assets

     6,584       4,370  
  

 

 

   

 

 

 

Total current assets

     292,650       366,148  

Long-term receivables, net

     136,276       141,152  

Property and equipment, net

     200,815       205,055  

Goodwill

     697,470       697,470  

Other intangible assets, net

     760,977       763,431  

Deferred rent receivable

     85,052       86,981  

Non-current restricted cash

     14,700       14,700  

Other non-current assets, net

     3,717       3,646  
  

 

 

   

 

 

 

Total assets

   $ 2,191,657     $ 2,278,583  
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity             

Current liabilities:

    

Accounts payable

   $ 28,931     $ 50,503  

Gift card liability

     115,516       170,812  

Dividends payable

     17,490       17,465  

Accrued employee compensation and benefits

     9,930       14,609  

Current maturities of capital lease and financing obligations

     13,946       13,144  

Accrued advertising

     13,121       6,369  

Other accrued expenses

     15,113       13,410  
  

 

 

   

 

 

 

Total current liabilities

     214,047       286,312  

Long-term debt, net

     1,284,354       1,282,691  

Capital lease obligations, less current maturities

     65,982       74,665  

Financing obligations, less current maturities

     39,393       39,499  

Deferred income taxes, net

     247,682       253,898  

Deferred rent payable

     66,795       69,572  

Other non-current liabilities

     21,920       19,174  
  

 

 

   

 

 

 

Total liabilities

     1,940,173       2,025,811  
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity:

    

Common stock, $0.01 par value, shares: 40,000,000 authorized; June 30, 2017 - 25,060,155 issued, 17,984,934 outstanding; December 31, 2016 - 25,134,223 issued, 17,969,636 outstanding

     251       251  

Additional paid-in-capital

     292,387       292,809  

Retained earnings

     382,808       382,082  

Accumulated other comprehensive loss

     (107     (107

Treasury stock, at cost; shares: June 30, 2017 - 7,075,221; December 31, 2016 - 7,164,587

     (423,855     (422,263
  

 

 

   

 

 

 

Total stockholders’ equity

     251,484       252,772  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,191,657     $ 2,278,583  
  

 

 

   

 

 

 


DineEquity, Inc.

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DineEquity, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

     Six Months Ended
June 30,
 
     2017     2016  

Cash flows from operating activities:

    

Net income

   $ 35,643     $ 52,372  

Adjustments to reconcile net income to cash flows provided by operating activities:

    

Depreciation and amortization

     15,422       15,554  

Non-cash interest expense

     1,663       1,591  

Deferred income taxes

     (8,514     (11,896

Non-cash stock-based compensation expense

     7,567       5,647  

Tax benefit from stock-based compensation

     —         1,169  

Excess tax benefit from stock-based compensation

     —         (865

Closure and impairment charges

     2,910       1,249  

(Gain) loss on disposition of assets

     (6,352     566  

Other

     (2,067     416  

Changes in operating assets and liabilities:

    

Accounts receivable, net

     (711     880  

Current income tax receivables and payables

     (481     5,291  

Gift card receivables and payables

     (14,121     (18,311

Other current assets

     (2,215     (1,424

Accounts payable

     (8,153     8,544  

Accrued employee compensation and benefits

     (4,743     (10,949

Other current liabilities

     5,046       4,077  
  

 

 

   

 

 

 

Cash flows provided by operating activities

     20,894       53,911  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Additions to property and equipment

     (6,945     (1,931

Proceeds from sale of property and equipment

     1,100       —    

Principal receipts from notes, equipment contracts and other long-term receivables

     9,946       8,658  

Other

     (292     (250
  

 

 

   

 

 

 

Cash flows provided by investing activities

     3,809       6,477  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Dividends paid on common stock

     (34,879     (34,029

Repurchase of common stock

     (10,003     (35,008

Principal payments on capital lease and financing obligations

     (7,170     (6,853

Tax payments for restricted stock upon vesting

     (2,320     (2,432

Proceeds from stock options exercised

     2,635       880  

Excess tax benefit from stock-based compensation

     —         865  
  

 

 

   

 

 

 

Cash flows used in financing activities

     (51,737     (76,577
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (27,034     (16,189

Cash, cash equivalents and restricted cash at beginning of period

     185,491       192,013  
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of period

   $ 158,457     $ 175,824  
  

 

 

   

 

 

 


DineEquity, Inc.

Page 11 of 15

 

NON-GAAP FINANCIAL MEASURES

(In thousands, except per share amounts)

(Unaudited)

Reconciliation of net income available to common stockholders to net income available to common stockholders, as adjusted for the following items: Executive separation costs; Kansas City Support Center consolidation costs; amortization of intangible assets; non-cash interest expense; closure and impairment charges; gain or loss on disposition of assets; the combined tax effect of the preceding adjustments; and income tax adjustments unrelated to current period operations, as well as related per share data:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2017     2016     2017     2016  

Net income available to common stockholders, as reported

   $ 20,938     $ 26,445     $ 35,041     $ 51,606  

Executive separation costs

     —         —         8,782       —    

Kansas City Support Center consolidation costs (1)

     —         2,966       —         5,032  

Amortization of intangible assets

     2,500       2,500       5,000       4,980  

Non-cash interest expense

     836       800       1,663       1,591  

Closure and impairment charges

     2,701       820       2,918       1,255  

(Gain) loss on disposition of assets

     (6,243     (48     (6,352     566  

Income tax benefit (provision)

     78       (2,605     (4,564     (4,967

Income tax adjustments (2)

     2,219       (2,002     2,219       (2,002

Net income allocated to unvested participating restricted stock

     (36     (35     (156     (97
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders, as adjusted

   $ 22,993     $ 28,841     $ 44,551     $ 57,964  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income available to common stockholders per share:

        

Net income available to common stockholders, as reported

   $ 1.18     $ 1.45     $ 1.98     $ 2.82  

Executive separation costs

     —         —         0.31       —    

Kansas City Support Center consolidation costs (1)

     —         0.10       —         0.17  

Amortization of intangible assets

     0.09       0.08       0.17       0.17  

Non-cash interest expense

     0.03       0.03       0.06       0.05  

Closure and impairment charges

     0.09       0.03       0.10       0.04  

(Gain) loss on disposition of assets

     (0.22     (0.00     (0.22     0.02  

Income tax adjustments (2)

     0.13       (0.11     0.13       (0.11

Net income allocated to unvested participating restricted stock

     (0.00     (0.00     (0.01     (0.00

Rounding

     —         0.01       (0.01     0.01  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income available to common stockholders per share, as adjusted

   $ 1.30     $ 1.59     $ 2.51     $ 3.17  
  

 

 

   

 

 

   

 

 

   

 

 

 

Numerator for basic EPS-income available to common stockholders, as adjusted

   $ 22,993     $ 28,841     $ 44,551     $ 57,964  

Effect of unvested participating restricted stock using the two-class method

     —         1       —         2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Numerator for diluted EPS-income available to common stockholders after assumed conversions, as adjusted

   $ 22,993     $ 28,842     $ 44,551     $ 57,966  
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator for basic EPS-weighted-average shares

     17,719       18,085       17,707       18,173  

Dilutive effect of stock options

     6       103       14       107  
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator for diluted EPS-weighted-average shares and assumed conversions

     17,725       18,188       17,721       18,280  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Includes $2,471 of lease termination costs for the three and six months ended June 30, 2016 reported in “closure and impairment charges” in the Consolidated Statements of Comprehensive Income.
(2) 2017: unrecognized tax benefits related to domestic manufacturing deductions taken in years prior to 2017; 2016: Adjustments to deferred tax balances primarily due to reduction of effective state tax rate because of Support Center consolidation.


DineEquity, Inc.

Page 12 of 15

 

DineEquity, Inc. and Subsidiaries

Non-GAAP Financial Measures

(Unaudited)

Reconciliation of the Company’s cash provided by operating activities to “adjusted free cash flow” (cash provided by operating activities, plus receipts from notes and equipment contracts receivable, less additions to property and equipment). Management uses this liquidity measure in its periodic assessments of, among other things, the amount of cash dividends per share of common stock and repurchases of common stock and we believe it is important for investors to have the same measure used by management for that purpose. Adjusted free cash flow does not represent residual cash flow available for discretionary purposes.

 

     Six Months Ended  
     June 30,  
     2017      2016  
     (In millions)  

Cash flows provided by operating activities

   $ 20.9      $ 53.9  

Receipts from notes and equipment contracts receivable

     5.2        4.4  

Additions to property and equipment

     (6.9      (1.9
  

 

 

    

 

 

 

Adjusted free cash flow

     19.2        56.4  

Dividends paid on common stock

     (34.9      (34.0

Repurchase of DineEquity common stock

     (10.0      (35.0
  

 

 

    

 

 

 
   $ (25.7    $ (12.6
  

 

 

    

 

 

 


DineEquity, Inc.

Page 13 of 15

 

Restaurant Data

The following table sets forth, for the three and six months ended June 30, 2017 and 2016, the number of “Effective Restaurants” in the Applebee’s and IHOP systems and information regarding the percentage change in sales at those restaurants compared to the same periods in the prior year and, as such, the percentage change in sales at Effective Restaurants is based on non-GAAP sales data. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. However, we believe that presentation of this information is useful in analyzing our revenues because franchisees and area licensees pay us royalties and advertising fees that are generally based on a percentage of their sales, and, where applicable, rental payments under leases that partially may be based on a percentage of their sales. Management also uses this information to make decisions about future plans for the development of additional restaurants as well as evaluation of current operations.

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2017     2016     2017     2016  
     (Unaudited)  

Applebee’s Restaurant Data

        

Effective Restaurants(a)

        

Franchise

     1,984       2,028       1,995       2,029  

Company

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,984       2,028       1,995       2,029  
  

 

 

   

 

 

   

 

 

   

 

 

 

System-wide(b)

        

Sales percentage change(c)

     (7.5 )%      (4.4 )%      (8.1 )%      (4.2 )% 

Domestic same-restaurant sales percentage change(d)

     (6.2 )%      (4.2 )%      (7.0 )%      (3.9 )% 

Franchise(b)

        

Sales percentage change(c)

     (7.5 )%      (3.4 )%      (8.1 )%      (3.2 )% 

Domestic same-restaurant sales percentage change(d)

     (6.2 )%      (4.2 )%      (7.0 )%      (3.9 )% 

Average weekly domestic unit sales (in thousands)

   $ 44.2     $ 46.5     $ 44.7     $ 47.6  

 

IHOP Restaurant Data

        

Effective Restaurants(a)

        

Franchise

     1,565       1,510       1,559       1,508  

Area license

     166       165       166       165  

Company

     9       11       9       11  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,740       1,686       1,734       1,684  
  

 

 

   

 

 

   

 

 

   

 

 

 

System-wide(b)

        

Sales percentage change(c)

     0.2     2.5     0.2     2.4

Domestic same-restaurant sales percentage change(d)

     (2.6 )%      0.2     (2.1 )%      0.8

Franchise(b)

        

Sales percentage change(c)

     0.5     2.8     0.6     2.6

Domestic same-restaurant sales percentage change(d)

     (2.6 )%      0.2     (2.1 )%      0.8

Average weekly domestic unit sales (in thousands)

   $ 36.3     $ 37.5     $ 36.6     $ 37.6  

Area License (b)

        

Sales percentage change(c)

     (1.4 )%      0.5     (2.6 )%      0.4


DineEquity, Inc.

Page 14 of 15

 

(a) “Effective Restaurants” are the weighted average number of restaurants open in a given fiscal period, adjusted to account for restaurants open for only a portion of the period. Information is presented for all Effective Restaurants in the Applebee’s and IHOP systems, which includes restaurants owned by franchisees and area licensees as well as those owned by the Company.

 

(b) “System-wide” sales are retail sales at Applebee’s restaurants operated by franchisees and IHOP restaurants operated by franchisees and area licensees, as reported to the Company, in addition to retail sales at company-operated restaurants. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. An increase in franchisees’ reported sales will result in a corresponding increase in our royalty revenue, while a decrease in franchisees’ reported sales will result in a corresponding decrease in our royalty revenue. Unaudited reported sales for Applebee’s domestic franchise restaurants, IHOP franchise restaurants and IHOP area license restaurants for the three and six months ended June 30, 2017 and 2016 were as follows:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2017      2016      2017      2016  
     (In millions)  

Reported sales (unaudited)

           

Applebee’s domestic franchise restaurant sales

   $ 1,049.6      $ 1,134.2      $ 2,135.8      $ 2,323.2  

IHOP franchise restaurant sales

     739.2      $ 735.4        1,483.4      $ 1,474.3  

IHOP area license restaurant sales

     69.2      $ 70.2        141.7      $ 145.5  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,858.0      $ 1,939.8      $ 3,760.9      $ 3,943.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(c) “Sales percentage change” reflects, for each category of restaurants, the percentage change in sales in any given fiscal period compared to the prior fiscal period for all restaurants in that category.

 

(d) “Domestic same-restaurant sales percentage change” reflects the percentage change in sales, in any given fiscal period, compared to the same weeks in the prior year for domestic restaurants that have been operated throughout both fiscal periods that are being compared and have been open for at least 18 months. Because of new unit openings and restaurant closures, the domestic restaurants open throughout both fiscal periods being compared may be different from period to period. Same-restaurant sales percentage change does not include data on IHOP area license restaurants located in Florida.


DineEquity, Inc.

Page 15 of 15

 

DineEquity, Inc. and Subsidiaries

Restaurant Data

(unaudited)

The following table summarizes our restaurant development activity:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2017     2016     2017     2016  

Applebee’s Restaurant Development Activity

      

Beginning of period:

     1,998       2,029       2,016       2,033  
  

 

 

   

 

 

   

 

 

   

 

 

 

Franchise restaurants opened:

        

Domestic

     4       2       5       7  

International

     4       3       4       4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total franchise restaurants opened

     8       5       9       11  
  

 

 

   

 

 

   

 

 

   

 

 

 

Franchise restaurants closed:

        

Domestic

     (33     (6     (52     (12

International

     (5     (1     (5     (5
  

 

 

   

 

 

   

 

 

   

 

 

 

Total franchise restaurants closed

     (38     (7     (57     (17
  

 

 

   

 

 

   

 

 

   

 

 

 

Net franchise restaurant reduction

     (30     (2     (48     (6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Applebee’s restaurants, end of period

     1,968       2,027       1,968       2,027  
  

 

 

   

 

 

   

 

 

   

 

 

 

Domestic

     1,811       1,873       1,811       1,873  

International

     157       154       157       154  

IHOP Restaurant Development Activity

        

Summary - beginning of period:

        

Franchise

     1,564       1,509       1,556       1,507  

Area license

     167       164       167       165  

Company(a)

     10       11       10       11  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total IHOP restaurants, beginning of period

     1,741       1,684       1,733       1,683  
  

 

 

   

 

 

   

 

 

   

 

 

 

Franchise/area license restaurants opened:

      

Domestic franchise

     9       13       20       19  

Domestic area license

     —         2       —         2  

International franchise

     8       2       12       3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total franchise/area license restaurants opened

     17       17       32       24  
  

 

 

   

 

 

   

 

 

   

 

 

 

Franchise/area license restaurants closed:

        

Domestic franchise

     (2     (5     (9     (8

Domestic area license

     (1     —         (1     (1

International franchise

     (2     (1     (2     (3
  

 

 

   

 

 

   

 

 

   

 

 

 

Total franchise/area license restaurants closed

     (5     (6     (12     (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Net franchise/area license restaurant development

     12       11       20       12  
  

 

 

   

 

 

   

 

 

   

 

 

 

Refranchised from Company restaurants

     9       1       9       1  

Net franchise/area license restaurant additions

     21       12       29       13  
  

 

 

   

 

 

   

 

 

   

 

 

 

Summary - end of period

        

Franchise

     1,586       1,519       1,586       1,519  

Area license

     166       166       166       166  

Company

     —         10       —         10  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total IHOP restaurants, end of period

     1,752       1,695       1,752       1,695  
  

 

 

   

 

 

   

 

 

   

 

 

 

Domestic

     1,646       1,616       1,646       1,616  

International

     106       79       106       79  

 

(a)  During the three months ending June 30, 2017, nine company-operated restaurants were refranchised and one was permanently closed.