Applebee's International Reports Third Quarter 2007 Results
OVERLAND PARK, Kan.--(BUSINESS WIRE)--Oct. 29, 2007--Applebee's International, Inc. (Nasdaq:APPB) today reported net earnings of $15.8 million, or $0.21 per diluted share, for the third quarter ended September 30, 2007. Excluding discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses totaling $3.0 million after-tax or $0.04 per share, net earnings were $18.8 million, or $0.25 per diluted share, for the third quarter of 2007. A reconciliation of non-GAAP measurements to GAAP results is attached to this release.
In March 2007, the company announced the decision to close 24 underperforming restaurants in 11 states. In the first quarter of 2007, 19 of these restaurants were closed, and four restaurants were closed in the second quarter of 2007. The company believes that four of the closed restaurants will have significant sales transfer to other existing restaurants, and in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the results of operations, impairment charges and lease obligations related to these four restaurants have been included in continuing operations. In addition, the write-down of the carrying value of the one restaurant which has not yet been closed is included in impairment charges and other restaurant closure costs in the accompanying consolidated statement of earnings. The results of operations, impairment charges and lease obligations for the remaining 19 closed restaurants are included in discontinued operations in the accompanying consolidated statements of earnings for both 2007 and 2006.
As previously reported, system-wide domestic comparable sales for the third quarter of 2007 decreased 0.3 percent. Company and domestic franchise restaurant comparable sales decreased 0.2 percent and 0.4 percent, respectively, for the quarter. System-wide domestic comparable sales for the year-to-date period through September decreased 1.8 percent, with domestic franchise restaurant comparable sales down 1.7 percent and company comparable sales down 2.0 percent.
The company plans to report domestic system-wide and franchise comparable sales for the October fiscal period, comprised of the four weeks ended October 28, 2007, later this week after franchisees report their results. Preliminary comparable sales for company restaurants for the October period decreased 1.1 percent, reflecting a decrease in guest traffic of between 2.5 and 3.0 percent, combined with a higher average check.
On July 16, 2007, IHOP Corp. ("IHOP") and Applebee's International jointly announced a definitive agreement under which IHOP will acquire Applebee's for $25.50 per share in cash, representing a total transaction value of approximately $2.1 billion. The all-cash transaction is subject to the approval of Applebee's shareholders and customary closing conditions. The shareholder vote is scheduled for October 30, 2007, and if shareholders approve the merger, the transaction is expected to close by November 29, 2007.
Dave Goebel, president and chief executive officer, said, "While we were pleased with the sequential improvement in our third quarter sales trends, we continue to face a difficult macro environment. Our restaurant margins during the quarter were pressured by higher labor costs as well as higher direct and occupancy costs attributable primarily to increased advertising and repairs and maintenance expenses.
"On a more positive note, we are excited about the launch of our new advertising campaign which debuted yesterday. The campaign, which was created by our new agency, McCann Erickson, begins a restaging of the brand that is designed to differentiate Applebee's from our competition. The restaging also introduces several new brand elements including an updated logo; new menu design and strategy; and the new tag line, "Together is good."
"Finally, the Applebee's management team has been working closely with the IHOP management team to facilitate the integration of the two companies. I am extremely proud of the dedication and focus our exceptional associates and franchisees have shown while preparing for this transition."
Other results for the third quarter ended September 30, 2007 included:
-- Total system-wide sales for the quarter increased by 3.9
percent over the prior year. System-wide sales are a non-GAAP
financial measure that includes sales at all company and
franchise Applebee's restaurants, as reported by franchisees.
The company believes that system-wide sales information is
useful in analyzing Applebee's market share and growth, and
because franchisees pay royalties and contribute to the
national advertising pool based on a percentage of their
sales.
-- Applebee's ended the quarter with 1,953 restaurants open
system-wide (510 company and 1,443 franchise restaurants).
During the third quarter of 2007, there were 16 new Applebee's
restaurants opened system-wide, including 2 company and 14
franchised restaurants.
-- As of September 30, 2007, the company had total debt
outstanding of $123.0 million, with $261.7 million available
under its revolving credit facility.
Applebee's International, Inc., headquartered in Overland Park, Kan., develops, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar brand, the largest casual dining concept in the world. As of October 28, 2007, there were 1,955 Applebee's restaurants operating system-wide in 49 states, 17 international countries, and one U.S. territory, of which 510 were company-owned. Additional information on Applebee's International can be found at the company's website (www.applebees.com).
Forward-Looking Statements
Certain statements contained in this release are forward-looking and based on current expectations. There are several risks and uncertainties that could cause actual results to differ materially from those described. These risks include, but are not limited to, our pending merger with IHOP, our ability and the ability of our franchisees to open and operate additional restaurants profitably and generate positive operating cash flows and return on invested capital, the impact of economic and demographic factors on consumer spending, maintaining and growing the value of the Applebee's brand, the impact of intense competition in the casual dining segment of the restaurant industry, the impact of future leverage on our operations, the failure to open the restaurants anticipated, the impact of increases in capital expenditure costs on future development, our ability to attract and retain qualified franchisees, and the impact of further penetration of restaurants in existing markets. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A of our 2006 Annual Report on Form 10-K. We disclaim any obligation to update forward-looking statements.
Additional Information and Where to Find It
In connection with the proposed transaction, IHOP Corp. and Applebee's International will be filing documents with the Securities and Exchange Commission (the "SEC"), and Applebee's has filed a related definitive proxy statement. Investors and security holders are urged to read the definitive proxy statement because it contains important information about the proposed transaction. Investors and security holders may obtain free copies of the definitive proxy statement and other documents filed with the SEC at the SEC's website at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by IHOP Corp. by contacting IHOP Investor Relations at 818-240-6055. Investors and security holders may obtain free copies of the documents filed with the SEC by Applebee's by contacting Applebee's Investor Relations at 913-967-4000.
Applebee's and their directors and executive officers may be deemed participants in the solicitation of proxies from the stockholders of Applebee's in connection with the proposed transaction. Information regarding the special interests of these directors and executive officers in the proposed transaction is included in the definitive proxy statement of Applebee's described above. Additional information regarding the directors and executive officers of Applebee's is also included in Applebee's proxy statement for its 2007 Annual Meeting of Stockholders, which was filed with the SEC on April 9, 2007, and the supplemental proxy statement filed on May 1, 2007. These documents are available free of charge at the SEC's website at www.sec.gov and from Investor Relations at IHOP and Applebee's as described above.
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
13 Weeks Ended 39 Weeks Ended
------------------- -------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2007 2006 2007 2006
--------- --------- --------- ---------
Operating revenues:
Company restaurant sales $288,861 $280,480 $883,128 $870,372
Franchise royalties and fees 34,357 33,340 107,651 103,581
Other franchise income 475 371 1,209 1,355
--------- --------- --------- ---------
Total operating revenues 323,693 314,191 991,988 975,308
--------- --------- --------- ---------
Cost of company restaurant
sales:
Food and beverage 77,093 74,856 235,048 231,726
Labor 101,951 96,353 305,202 291,963
Direct and occupancy 83,262 77,296 243,302 230,948
Pre-opening expense 214 1,115 1,700 3,022
--------- --------- --------- ---------
Total cost of company
restaurant sales 262,520 249,620 785,252 757,659
--------- --------- --------- ---------
Cost of other franchise income 357 694 1,100 1,741
General and administrative
expenses 35,566 35,601 100,546 103,527
Amortization of intangible
assets 128 154 382 562
Impairment and other restaurant
closure costs 74 1,296 5,830 2,416
Loss on disposition of property
and equipment 655 680 1,279 1,677
--------- --------- --------- ---------
Operating earnings 24,393 26,146 97,599 107,726
--------- --------- --------- ---------
Other income (expense):
Investment income 746 885 2,753 1,345
Interest expense (1,945) (2,970) (6,670) (8,509)
Other income (expense) (66) 301 (158) 538
--------- --------- --------- ---------
Total other expense (1,265) (1,784) (4,075) (6,626)
--------- --------- --------- ---------
Earnings from continuing
operations before income taxes 23,128 24,362 93,524 101,100
Income taxes(a) 7,322 8,849 30,452 35,085
--------- --------- --------- ---------
Earnings from continuing
operations 15,806 15,513 63,072 66,015
Loss from discontinued
operations, net of tax (42) (672) (13,684) (3,619)
--------- --------- --------- ---------
Net earnings $15,764 $14,841 $49,388 $62,396
========= ========= ========= =========
Basic net earnings per common
share:
Earnings from continuing
operations $0.21 $0.21 $0.85 $0.89
Loss from discontinued
operations, net of tax -- (0.01) (0.18) (0.05)
--------- --------- --------- ---------
Basic net earnings per common
share $0.21 $0.20 $0.67 $0.84
========= ========= ========= =========
Diluted net earnings per common
share:
Earnings from continuing
operations $0.21 $0.21 $0.84 $0.88
Loss from discontinued
operations, net of tax -- (0.01) (0.18) (0.05)
--------- --------- --------- ---------
Diluted net earnings per common
share $0.21 $0.20 $0.66 $0.83
========= ========= ========= =========
Basic weighted average shares
outstanding 74,178 73,902 74,078 74,044
========= ========= ========= =========
Diluted weighted average shares
outstanding 75,287 74,673 75,186 75,007
========= ========= ========= =========
(a) The income tax rate for the third quarter of 2007 benefited from
higher tax credits related to the construction of our new corporate
headquarters.
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS
(Unaudited)
(in thousands, except per share amounts)
In addition to the results provided in accordance with Generally
Accepted Accounting Principles ("GAAP") throughout this document, the
company has provided non-GAAP measurements which present operating
results on a basis before discontinued operations, impairment and
other restaurant closure costs, strategic alternative and proxy
contest expenses in 2007 and legal expenses related to a lawsuit in
2006.
The company is using earnings before discontinued operations,
impairment and other restaurant closure costs, strategic alternative
and proxy contest expenses in 2007 and legal expenses related to a
lawsuit in 2006 as a key performance measure of results of operations
for purposes of evaluating performance internally. This non-GAAP
measurement is not intended to replace the presentation of our
financial results in accordance with GAAP. Rather, the company
believes that this presentation provides additional information to
facilitate the comparison of past and present operations.
13 Weeks Ended 39 Weeks Ended
------------------- --------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2007 2006 2007 2006
--------- --------- ---------- ---------
Discontinued operations $(299) $(1,414) $(21,482) $(5,990)
Impairment and other
restaurant closure costs (74) (1,296) (5,830) (2,416)
Legal expenses related to
lawsuit -- (1,500) -- (1,500)
Strategic alternative and
proxy contest expenses (3,884) -- (7,498) --
Income taxes 1,244 1,730 12,030 3,730
--------- --------- ---------- ---------
Discontinued operations,
impairment and other
restaurant closure costs,
legal expenses and strategic
alternative and proxy contest
expenses, net of tax $ (3,013) $ (2,480) $ (22,780) $ (6,176)
========= ========= ========== =========
Diluted weighted average
shares outstanding 75,287 74,673 75,186 75,007
========= ========= ========== =========
Diluted earnings per share
impact of discontinued
operations, impairment and
other restaurant closure
costs, legal expenses and
strategic alternative and
proxy contest expenses $ (0.04) $ (0.03) $ (0.30) $ (0.08)
========= ========= ========== =========
Reconciliation of earnings
before discontinued
operations, impairment and
other restaurant closure
costs, legal expenses and
strategic alternative and
proxy contest expenses to net
earnings:
Earnings before discontinued
operations, impairment and
other restaurant closure
costs, legal expenses and
strategic alternative and
proxy contest expenses $ 18,777 $ 17,321 $ 72,168 $ 68,572
Discontinued operations,
impairment and other
restaurant closure costs,
legal expenses and strategic
alternative and proxy contest
expenses, net of tax (3,013) (2,480) (22,780) (6,176)
--------- --------- ---------- ---------
Net earnings $15,764 $14,841 $49,388 $62,396
========= ========= ========== =========
Reconciliation of earnings per
share before discontinued
operations, impairment and
other restaurant closure
costs, legal expenses and
strategic alternative and
proxy contest expenses to
reported earnings per share:
Diluted earnings per share
before discontinued
operations, impairment and
other restaurant closure
costs, legal expenses and
strategic alternative and
proxy contest expenses $ 0.25 $ 0.23 $ 0.96 $ 0.91
Diluted earnings per share
impact of discontinued
operations, impairment and
other restaurant closure
costs, legal expenses and
strategic alternative and
proxy contest expenses (0.04) (0.03) (0.30) (0.08)
--------- --------- ---------- ---------
Reported diluted earnings per
share $0.21 $0.20 $0.66 $0.83
========= ========= ========== =========
The following table contains information derived from the company's
consolidated statements of earnings expressed as a percentage of
total operating revenues, except where otherwise noted. Percentages
may not add due to rounding.
13 Weeks Ended 39 Weeks Ended
------------------- -------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2007 2006 2007 2006
--------- --------- --------- ---------
Operating revenues:
Company restaurant sales 89.2% 89.3% 89.0% 89.2%
Franchise royalties and fees 10.6 10.6 10.9 10.6
Other franchise income 0.1 0.1 0.1 0.1
--------- --------- --------- ---------
Total operating revenues 100.0% 100.0% 100.0% 100.0%
========= ========= ========= =========
Cost of sales (as a percentage
of company restaurant sales):
Food and beverage 26.7% 26.7% 26.6% 26.6%
Labor 35.3 34.4 34.6 33.5
Direct and occupancy 28.8 27.6 27.6 26.5
Pre-opening expense 0.1 0.4 0.2 0.3
--------- --------- --------- ---------
Total cost of sales 90.9% 89.0% 88.9% 87.1%
========= ========= ========= =========
Cost of other franchise income
(as a percentage of other
franchise income) 75.2% 187.1% 91.0% 128.5%
General and administrative
expenses 11.0 11.3 10.1 10.6
Amortization of intangible
assets -- -- -- 0.1
Impairment and other restaurant
closure costs -- 0.4 0.6 0.2
Loss on disposition of property
and equipment 0.2 0.2 0.1 0.2
--------- --------- --------- ---------
Operating earnings 7.5 8.3 9.8 11.0
--------- --------- --------- ---------
Other income (expense):
Investment income 0.2 0.3 0.3 0.1
Interest expense (0.6) (0.9) (0.7) (0.9)
Other income -- 0.1 -- 0.1
--------- --------- --------- ---------
Total other expense (0.4) (0.6) (0.4) (0.7)
--------- --------- --------- ---------
Earnings from continuing
operations before income taxes 7.1 7.8 9.4 10.4
Income taxes 2.3 2.8 3.1 3.6
--------- --------- --------- ---------
Earnings from continuing
operations 4.9 4.9 6.4 6.8
Loss from discontinued
operations, net of tax -- (0.2) (1.4) (0.4)
--------- --------- --------- ---------
Net earnings 4.9% 4.7% 5.0% 6.4%
========= ========= ========= =========
The following table sets forth certain financial information and other
restaurant data relating to company and franchise restaurants, as
reported to us by franchisees:
13 Weeks Ended 39 Weeks Ended
--------------------- ---------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2007 2006 2007 2006
---------- ---------- ---------- ----------
Number of restaurants:
Company:
Beginning of period 508 507 521 486
Restaurant openings 2 6 12 25
Restaurant closings -- (1) (23) (3)
Restaurants acquired
from franchisees -- -- -- 4
---------- ---------- ---------- ----------
End of period 510 512 510 512
---------- ---------- ---------- ----------
Franchise:
Beginning of period 1,435 1,353 1,409 1,318
Restaurant openings 14 22 42 67
Restaurant closings (6) (3) (8) (9)
Restaurants acquired
by franchisor -- -- -- (4)
---------- ---------- ---------- ----------
End of period 1,443 1,372 1,443 1,372
---------- ---------- ---------- ----------
Total:
Beginning of period 1,943 1,860 1,930 1,804
Restaurant openings 16 28 54 92
Restaurant closings (6) (4) (31) (12)
---------- ---------- ---------- ----------
End of period 1,953 1,884 1,953 1,884
========== ========== ========== ==========
Weighted average weekly
sales per restaurant:
Company(1) $43,720 $43,331 $44,501 $45,527
Domestic franchise $46,928 $47,516 $48,993 $50,394
Domestic total $46,046 $46,327 $47,744 $49,011
Change in comparable
restaurant sales:(2)
Company(3) (0.2)% (1.7)% (2.0)% (0.8)%
Domestic franchise (0.4)% (2.5)% (1.7)% (0.4)%
Domestic total (0.3)% (2.3)% (1.8)% (0.5)%
Total operating revenues
(in thousands):
Company restaurant
sales(4) $288,861 $280,480 $883,128 $870,372
Franchise royalties
and fees(5) 34,357 33,340 107,651 103,581
Other franchise
income(6) 475 371 1,209 1,355
---------- ---------- ---------- ----------
Total $323,693 $314,191 $991,988 $975,308
========== ========== ========== ==========
(1) Includes restaurants presented as discontinued operations.
Excluding the restaurants presented as discontinued operations,
company average weekly sales were $43,720 and $43,997 in the 2007
quarter and the 2006 quarter, respectively, and $44,763 and $46,225
in the 2007 year-to-date period and the 2006 year-to-date period,
respectively.
(2) When computing comparable restaurant sales, restaurants open for
at least 18 months are compared from period to period.
(3) Includes restaurants presented as discontinued operations.
Excluding the restaurants presented as discontinued operations,
company comparable restaurant sales were (0.2)% and (1.6)% in the
2007 quarter and the 2006 quarter, respectively, and (2.0)% and
(0.7)% in the 2007 year-to-date period and the 2006 year-to-date
period, respectively.
(4) Excludes restaurants presented as discontinued operations.
Sales for these restaurants, in thousands, were $6,458 in the 2006
quarter and $7,298 and $20,593 in the 2007 year-to-date period and
the 2006 year-to-date period, respectively.
(5) Franchise royalties are generally 4% of each franchise
restaurant's reported monthly gross sales. Reported unaudited
franchise sales, in thousands, were $865,484 and $830,458 in the 2007
quarter and the 2006 quarter, respectively, and $2,681,427 and
$2,594,659 in the 2007 year-to-date period and the 2006 year-to-date
period, respectively. Franchise fees typically are $35,000 for each
restaurant opened.
(6) Other franchise income includes revenue from information
technology products and services provided to certain franchisees.
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
September 30, December 31,
2007 2006
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $18,912 $22,309
Short-term investments, at market value 299 293
Receivables, net of allowance 39,754 48,224
Inventories 10,912 11,524
Prepaid income taxes 4,736 55
Prepaid and other current assets 19,192 15,255
Assets held for sale 5,273 7,633
Current assets related to discontinued
operations 4,935 1,630
------------- ------------
Total current assets 104,013 106,923
Property and equipment, net 631,243 618,492
Goodwill 138,950 138,950
Restricted assets related to captive
insurance subsidiary 10,755 13,356
Other intangible assets, net 6,028 6,408
Other assets, net 36,881 34,351
Non-current assets related to discontinued
operations 2,558 19,705
------------- ------------
$930,428 $938,185
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $310 $265
Accounts payable 49,720 43,235
Accrued expenses and other current
liabilities 96,348 113,641
Loss reserve related to captive insurance
subsidiary 4,940 6,094
Accrued dividends -- 16,299
Accrued income taxes -- 9,015
Current liabilities related to
discontinued operations 1,162 --
------------- ------------
Total current liabilities 152,480 188,549
------------- ------------
Non-current liabilities:
Long-term debt, less current portion 122,697 174,920
Deferred income taxes 25,134 26,225
Other non-current liabilities 70,185 61,837
Non-current liabilities related to
discontinued operations 6,367 --
------------- ------------
Total non-current liabilities 224,383 262,982
------------- ------------
Total liabilities 376,863 451,531
------------- ------------
Stockholders' equity:
Preferred stock - par value $0.01 per
share: authorized - 1,000,000 shares; no
shares issued -- --
Common stock - par value $0.01 per share:
authorized - 125,000,000 shares; issued
- 108,503,243 shares 1,085 1,085
Additional paid-in capital 274,412 265,122
Retained earnings 822,722 774,884
------------- ------------
1,098,219 1,041,091
Treasury stock - 33,343,536 shares in
2007 and 34,393,331 shares in 2006, at
cost (544,654) (554,437)
------------- ------------
Total stockholders' equity 553,565 486,654
------------- ------------
$930,428 $938,185
============= ============
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
39 Weeks Ended
---------------------------
September 30, September 24,
2007 2006
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $49,388 $62,396
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 51,225 48,092
Amortization of intangible assets 382 562
Stock-based compensation 12,285 16,584
Other amortization 250 233
Deferred income tax benefit (5,815) (8,615)
Impairment and other restaurant closure
costs 25,935 6,500
Loss on disposition of property and
equipment 686 1,692
Income tax benefit from stock-based
compensation 456 1,233
Changes in assets and liabilities,
exclusive of effect of acquisition:
Receivables 8,470 2,789
Inventories 522 10,031
Prepaid and other current assets (661) 115
Accounts payable 3,478 (24,502)
Accrued expenses and other current
liabilities (17,824) (16,750)
Loss reserve and unearned premiums
related to
captive insurance subsidiary (1,154) (4,210)
Income taxes (13,946) 7,440
Other non-current liabilities 6,481 7,770
Other (3,684) (1,922)
------------- -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 116,474 109,438
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (65,276) (86,635)
Change in restricted assets related to
captive insurance subsidiary 2,601 4,318
Acquisition of restaurants -- (8,053)
Proceeds from sale of property and
equipment 4,949 281
------------- -------------
NET CASH USED BY INVESTING ACTIVITIES (57,726) (90,089)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (999) (27,528)
Dividends paid (16,299) (14,840)
Issuance of common stock upon exercise of
stock options 4,001 8,814
Shares issued under employee benefit
plans 2,831 3,345
Excess tax benefits from stock-based
compensation 499 1,683
Net debt proceeds (payments) (52,178) 5,913
------------- -------------
NET CASH USED BY FINANCING ACTIVITIES (62,145) (22,613)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,397) (3,264)
CASH AND CASH EQUIVALENTS, beginning of
period 22,309 13,040
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $18,912 $9,776
============= =============
CONTACT:
Applebee's International, Inc.
Carol DiRaimo, 913-967-4109
Vice President of Investor Relations
SOURCE:
Applebee's International, Inc.