IHOP Corp. Reports Fourth Quarter and Fiscal 2002 Results

February 26, 2003 at 7:05 AM EST
GLENDALE, Calif., Feb 26, 2003 /PRNewswire-FirstCall via COMTEX/ -- IHOP Corp. (NYSE: IHP) today announced results for its fourth quarter and fiscal year ended December 31, 2002.

Fourth Quarter and Fiscal 2002 Performance

The Company reported a 3.3% increase of net income to $12.0 million, or an increase of 1.8% in diluted earnings per share to $0.56 in the fourth quarter 2002, compared with net income of $11.6 million, or diluted earnings per share of $0.55 in the fourth quarter 2001. For the twelve months ended December 31, the Company reported a 1.4% increase of net income to $40.8 million, and a decrease of 1.0% in diluted net income per share to $1.92 in 2002, compared with net income of $40.3 million, or diluted net income per share of $1.94 in 2001.

Julia A. Stewart, IHOP Corp. president and chief executive officer, said, "We are pleased with the execution of our business in the fourth quarter. However, 2002 was a year of building the foundation for the future of our Company by investing in branding, operations and corporate infrastructure. With our investment in 2002, and our previously announced new operating model, we have a clear path for 2003 and beyond."

System-wide sales increased 8.9% in the quarter and by 9.9% in the twelve months ended December 31, 2002 over the same periods in 2001. The sales increase is primarily the result of growth in the number of effective restaurants and increases in average per unit sales. Effective restaurants grew by 8.1% in the fourth quarter and by 7.4% for the twelve months ended December 31, 2002 over the same periods in 2001. System-wide comparable store sales decreased by 1.0% for the fourth quarter and increased by 0.7% for the twelve months ended December 31, 2002. In the fourth quarter 2002, total revenues were $107.4 million, an increase of 18.8% over the fourth quarter 2001. For the twelve months ended December 31, 2002 total revenues were $365.9 million, an increase of 12.8% over the same period in 2001.

In the fourth quarter 2002, IHOP franchised 49 restaurants compared to 40 in the fourth quarter 2001. For the twelve months ended December 31, 2002, IHOP franchised 100 restaurants, compared to 95 restaurants over the same period in 2001.

Brand and Operations Update

During the fourth quarter, the Company completed work on its new advertising campaign and revised media and promotional strategies that were launched in January 2003. The completion of these initiatives finalized the initial stage of IHOP's brand revitalization efforts. In addition, the Company developed a number of programs which should better position it for success in 2003 and beyond. An expanded mystery shopper program and improved service and food delivery procedures should increase guest satisfaction.

Outlook for 2003

As previously announced in January 2003, IHOP plans to transition from company-financed development of new restaurants to a traditional franchise development model during 2003. Taking this transition into account, IHOP provided the following performance guidance for fiscal 2003:

     *  The development of 55 to 60 company-financed restaurants and 20 to
        25 franchise developed restaurants, for a total of between 75 to
        85 new restaurants.  This compares with the development of
        86 company-financed restaurants and 15 franchise/area licensed
        developed restaurants in 2002.

     *  System-wide sales to range between $1.55 billion and $1.6 billion.
        This compares to system-wide sales of $1.48 billion in 2002.

     *  Net income per diluted share to range between $1.55 and $1.70.  This
        compares with diluted net income per share of $1.92 in 2002.

     *  Free cash flow to improve to between a negative $25 million and
        negative $35 million.  This compares with negative free cash flow of
        $63.5 million in 2002.
Stewart stated, "2003 will be a transition year for IHOP. We will be required to execute our former business model while making substantive progress to our new operating model. Our financial targets for this year reflect the transition. As a result, we believe our full year 2003 net income per share will be between $1.55 and $1.70, and that our free cash flow targets will improve as we substantially reduce capital expenditures. In addition, we are still in the process of considering several strategic financial alternatives, and anticipate reaching a decision within the next 30 days."

As in prior years, there are a number of factors that influence operating results including primarily the magnitude and timing of new restaurant openings and the number of franchise units reacquired, refranchised or closed by IHOP. Additionally, IHOP noted that the level of quarterly earnings can be dramatically affected by the timing of a relatively small number of franchise sales. For this reason the Company cannot predict earnings on a quarterly basis with precision, nor does it manage its business on such a basis.

Investor Conference Call

IHOP Corp. will host an investor conference call to discuss its fourth quarter and year-end results today at 11:00 a.m. ET (8:00 a.m. PT). To participate on the call, please dial (719) 457-2604 and reference pass code 699254. A webcast of the live call will be available on the Investor Relations section of the Company's Web site located at www.ihop.com. Participants should allow approximately five minutes prior to the call's start time to visit the site and download any streaming media software needed to listen to the webcast.

An audio replay of the call will be available by 2:00 p.m. ET (11:00 a.m. PT) on February 26, 2003, which can be accessed through March 5, 2003 by dialing (719) 457-0820 and referencing pass code 699254. An online archive of the webcast will be available approximately four hours following the end of the live call and will be archived on IHOP's Web site until March 26, 2003.

About IHOP Corp.

The IHOP family restaurant chain has been serving a wide variety of breakfast, lunch and dinner selections for 45 years. Offering more than 16 types of pancakes, as well as omelets, breakfast specialties, burgers, chicken and steaks, IHOP's diverse menu appeals to people of all ages. IHOP restaurants are developed, operated and franchised by Glendale, California based IHOP Corp. As of December 31, 2002, there were 1,103 IHOP restaurants in the chain in 45 states and Canada. IHOP is publicly traded on the NYSE under the symbol "IHP." For more information, call the company's headquarters at (818) 240-6055 or visit the company's Web site located at www.ihop.com.

Forward-Looking Statements

There are forward-looking statements contained in this news release. They use such words as "may," "will," "expect," "believe," "plan," or other similar terminology. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different than those expressed or implied in such statements. These factors include, but are not limited to: risks associated with the implementation of the Company's new strategic growth plan, the availability of suitable locations and terms of the sites designated for development; legislation and government regulation including the ability to obtain satisfactory regulatory approvals; conditions beyond IHOP's control such as weather, natural disasters or acts of war or terrorism; availability and cost of materials and labor; cost and availability of capital; competition; continuing acceptance of the International House of Pancakes brand and concepts by guests and franchisees; IHOP's overall marketing, operational and financial performance; economic and political conditions; adoption of new, or changes in, accounting policies and practices; and other factors discussed from time to time in IHOP's filings with the Securities and Exchange Commission. Forward-looking information is provided by IHOP pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. In addition, IHOP disclaims any intent or obligation to update these forward-looking statements.


                         IHOP CORP. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
               (Dollars in thousands, except per share amounts)
                                 (Unaudited)


                             Three Months Ended        Twelve Months Ended
                                December 31,               December 31,
                             2002         2001          2002          2001
     Revenues
       Franchise
        operations
         Rent              $21,582       $18,047      $82,007       $65,780
         Service fees
          and other         39,582        36,173      156,415       142,850

                            61,164        54,220      238,422       208,630
       Sale of franchises
        and equipment       27,205        19,367       53,019        46,996
       Company operations   19,023        16,822       74,433        68,810

       Total revenues      107,392        90,409      365,874       324,436

     Costs and Expenses
       Franchise operations
         Rent               13,584        10,576       50,562        37,867
         Other direct costs 14,117        12,206       55,139        48,269

                            27,701        22,782      105,701        86,136
       Cost of sales of
        franchises and
        equipment           18,012        12,800       35,294        31,086
       Company operations   19,256        16,312       72,275        66,330
       Field, corporate and
        administrative      12,516        10,705       48,253        40,621
       Depreciation and
        amortization         4,183         3,920       15,967        14,818
       Interest              5,948         5,257       21,575        21,107
       Other (income)
        expense, net           650           121        1,452          (123)
         Total costs
          and expenses      88,266        71,897      300,517       259,975
     Income before
      income taxes          19,126        18,512       65,357        64,461
     Provision for
      income taxes           7,172         6,942       24,509        24,173
     Net income            $11,954       $11,570      $40,848       $40,288

     Net Income Per Share
       Basic                 $0.57         $0.56        $1.95         $1.98

       Diluted               $0.56         $0.55        $1.92         $1.94

     Weighted Average
      Shares Outstanding
       Basic                21,152        20,701       20,946        20,398

       Diluted              21,334        21,057       21,269        20,762


                         IHOP CORP. AND SUBSIDIARIES
                            RESULTS OF OPERATIONS
                            (Dollars in thousands)
                                 (Unaudited)

                              Three Months Ended         Twelve Months Ended
                                 December 31,                December 31,
                              2002          2001          2002          2001

       Restaurant Data
         Effective
          restaurants(a)(d)
         Franchise             866           796          843           767
         Company                79            72           76            72
         Area license          125           122          123           131
           Total             1,070           990        1,042           970
     System-wide
       Sales(b)(d)        $371,852      $341,537   $1,478,567    $1,345,757
         Percent change       8.9%          7.7%         9.9%          8.0%
       Average sales per
        effective
        restaurant(d)         $348          $345       $1,419        $1,387
         Percent change       0.9%          3.0%         2.3%          2.6%
         Comparable sales
          percentage
          change (c)         (1.0%)         0.6%         0.7%          0.8%
     Franchise
       Sales              $322,100      $295,422   $1,278,103    $1,146,124
         Percent change       9.0%         13.0%        11.5%         11.6%
       Average sales per
        effective restaurant  $372          $371       $1,516        $1,494
         Percent change       0.3%          1.6%         1.5%          1.3%
         Comparable sales
          percentage
          change(c)          (1.0%)         0.8%         0.7%          0.9%
     Company
       Sales               $19,023       $16,822      $74,433       $68,810
         Percent change      13.1%        (13.3%)        8.2%         (5.5%)
       Average sales per
        effective restaurant  $241          $234         $979          $956
         Percent change       3.0%         (3.7%)        2.4%         (0.2%)
     Area License
      (with Japan)
       Sales (d)           $30,729       $29,293     $126,031      $130,823
         Percent change       4.9%        (19.5%)       (3.7%)       (10.7%)
       Average sales per
        effective
        restaurant (d)        $246          $240       $1,025          $999
         Percent change       2.5%         (0.4%)        2.6%          2.3%
     Area License
      (without Japan)
       Sales (d)           $30,729       $29,293     $126,031      $122,351
         Percent change       4.9%          0.1%         3.0%          6.3%
       Average sales per
        effective
        restaurant (d)        $246          $240       $1,025        $1,011
         Percent change       2.5%         (2.4%)        1.4%          2.7%

     (a)  "Effective restaurants" are the number of restaurants in a given
          fiscal period adjusted to account for restaurants open for only a
          portion of the period. It is calculated by dividing total restaurant
          operating days by 91 days for a quarterly calculation.
     (b)  "System-wide sales" are retail sales of franchisees, area licensees
          and Company-operated restaurants, as reported to IHOP.
     (c)  "Comparable sales percentage change" reflects the percentage change
          in sales for restaurants that are operated for the entire fiscal
          period in which they are being compared. Because of new unit
          openings and store closures, the restaurants opened for an entire
          fiscal period being compared will be different from period to
          period.  Comparable average sales do not include data on restaurants
          located in Florida.
     (d)  During the second quarter of 2001, the Company's area licensee in
          Japan negotiated an early termination of its area license agreement.
          As part of this early termination, the area licensee discontinued
          operations of its 32 IHOP restaurants.  Sales for the twelve months
          ended 2001, include sales in Japan until their closing.  Excluding
          the units in Japan, system-wide sales increased 8.9% for the quarter
          and 10.6% for the twelve months ended December 31; effective
          restaurants grew by 8.1% for the quarter and 8.5% for the twelve
          months ended December 31; and average sales per effective restaurant
          increased by 0.9% for the quarter and 1.9% for the twelve months
          ended December 31, in each case over the same period in 2001. In the
          fourth quarter of 2001, excluding the units in Japan, system-wide
          sales increased 10.2% for the quarter and 10.1% for the twelve
          months ended December 31; effective restaurants grew by 8.2% for the
          period and 8.0% for the twelve months ended December 31; and average
          sales per effective restaurant increased by 1.8% for the quarter and
          2.0% for the twelve months ended December 31, in each case over the
          same periods in 2000.


                         IHOP CORP. AND SUBSIDIARIES
               RESTAURANT DEVELOPMENT AND FRANCHISING ACTIVITY
                                 (Unaudited)

                               Three Months Ended        Twelve Months Ended
                                  December 31,               December 31,
                               2002         2001         2002           2001

     RESTAURANT DEVELOPMENT
      ACTIVITY
     IHOP-beginning
      of period              1,063           982        1,017           968
     New openings
       IHOP--developed          41            34           86            76
       Franchisee--developed     3             5           10            12
       Area license              1            --            5             5

     Total new openings         45            39          101            93
     Closings
       Company and franchise    (4)           (3)         (13)          (11)
       Area license             (1)           (1)          (2)          (33)

     IHOP-end of period      1,103         1,017        1,103         1,017

     Summary-end of period
       Franchise               902           823          902           823
       Company                  76            72           76            72
       Area license            125           122          125           122

     Total IHOP              1,103         1,017        1,103         1,017


     RESTAURANT FRANCHISING
      ACTIVITY
     IHOP-developed             41            31           80            74
     Franchisee-developed        3             5           10            12
     Rehabilitated and
      refranchised               5             4           10             9

       Total restaurants
        franchised              49            40          100            95
     Reacquired by IHOP         (4)           (5)         (10)          (12)
     Closed                     (4)           (1)         (11)           (7)

       Net addition             41            34           79            76


                         IHOP CORP. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                            (Dollars in thousands)
                                 (Unaudited)

                                                   December 31,   December 31,
                                                      2002            2001
     Current assets, net                            $159,101        $59,160
     Property and equipment, net                     286,226        238,026
     Long-term receivables:
       Notes receivable                               46,929         42,559
       Equipment contracts receivable                153,261        131,200
       Direct financing leases receivable            132,602        134,100
     Other assets                                     41,681         36,384
     Total assets                                   $819,800       $641,429

     Current liabilities                             $53,564        $44,529
     Long-term debt                                  145,768         50,209
     Other long-term liabilities                     256,079        234,261
     Shareholders' equity                            364,389        312,430
     Total liabilities and shareholders' equity     $819,800       $641,429


                         IHOP CORP. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                            (Dollars in thousands)
                                 (Unaudited)

                                                      Twelve Months Ended
                                                          December 31,
                                                       2002           2001
     Cash provided by operating activities           $78,112        $55,703
     Cash used in investing activities
       Additions to property and equipment          (141,740)      (119,797)
       Additions to other assets, net                    170         (2,645)
     Cash provided by financing activities           155,945         65,783
     Net change in cash and cash equivalents          92,487           (956)
     Cash and cash equivalents at
      beginning of period                              6,252          7,208
     Cash and cash equivalents at end of period      $98,739         $6,252
SOURCE IHOP Corp.