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): July 25, 2007

IHOP CORP.
(Exact name of registrant as specified in its charter)

 

 

 

 

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:

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

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

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

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

Item 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On July 25, 2007, IHOP Corp. issued a press release announcing its second quarter 2007 financial results. A copy of the press release is attached as Exhibit 99.1, and incorporated herein by reference.

Also on July 25, 2007, IHOP Corp. held a conference call to discuss its second quarter 2007 financial results. A copy of the prepared remarks of management is attached as Exhibit 99.2, and incorporated herein by reference.

The prepared remarks of management accompanying management’s discussion during the conference call include references to the non-GAAP financial measure “net income excluding early debt extinguishment costs.”  The Company defines “net income excluding early debt extinguishment costs” for a given period as net income for such period, less any early debt extinguishment costs incurred in such period.   Management believes net income excluding early debt extinguishment costs and basic and diluted net income per share excluding early debt extinguishment costs is useful because it provides a more accurate period to period comparison.  Net income excluding early debt extinguishment costs for any given period may be affected by a variety of factors, including but not limited to, changes in assets and liabilities and the timing of purchases and payments.  Net income excluding early debt extinguishment costs is a supplemental non-GAAP financial measure and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.

The following table reconciles net income to net income excluding the impact of early debt extinguishment costs, and basic and diluted net income per share to net income excluding the impact of early debt extinguishment costs per share, for each of the three and six months ended June 30, 2007 and 2006:

		Three Months Ended June 30,						Six Months Ended June 30,
		2007			2006			2007			2006
		(dollars in thousands, except per share amounts)
Net income, as reported		$	14,130		$	10,306		$	25,443		$	22,900
Early debt extinguishment costs		—			—			2,223			—
Income tax benefit		—			—			(738		)	—
Net income excluding early debt extinguishment costs		$	14,130		$	10,306		$	26,928		$	22,900
Basic net income per share:
Net income, as reported per share		$	0.82		$	0.57		$	1.45		$	1.25
Early debt extinguishment costs per share		—			—			0.13			—
Income tax benefit per share		—			—			(0.04		)	—
Net income excluding early debt extinguishment costs per share		$	0.82		$	0.57		$	1.54		$	1.25
Diluted net income per share:
Net income, as reported per share		$	0.82		$	0.56		$	1.44		$	1.24
Early debt extinguishment costs per share		—			—			0.12			—
Income tax benefit per share		—			—			(0.04		)	—
Net income excluding early debt extinguishment costs per share		$	0.82		$	0.56		$	1.52		$	1.24

 

2

---

Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d)   Exhibits

Exhibit Number		Description
99.1		Press release of Registrant, dated July 25, 2007 (Second Quarter 2007 Financial Results).
99.2		Prepared remarks of management of Registrant for conference call held on July 25, 2007.

 

3

---

SIGNATURE

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 hereunto duly authorized.

	IHOP CORP.
Date: July 25, 2007	By:	/s/ THOMAS CONFORTI
		Thomas Conforti
		Chief Financial Officer (Principal Financial Officer)

 

4

---

EXHIBIT INDEX TO CURRENT REPORT ON FORM 8-K

 

Exhibit Number		Description
99.1		Press release of Registrant, dated July 25, 2007 (Second Quarter 2007 Financial Results).
99.2		Prepared remarks of management of Registrant for conference call held on July 25, 2007.

 

5

Exhibit 99.1

RESTAURANT   SUPPORT   CENTER

FOR IMMEDIATE RELEASE

Stacy Roughan

Director, Investor Relations

IHOP Corp.

818-637-3632

 

IHOP CORP. REPORTS SECOND QUARTER 2007 FINANCIAL RESULTS

GLENDALE, Calif., July 25, 2007 — IHOP Corp. (NYSE: IHP) today announced financial results for the second quarter and six months ended June 30, 2007, which included the following performance highlights:

·                  Net income per diluted share for the second quarter 2007 was $0.82, which increased 46.4% primarily due to a 7.1% decrease in General & Administrative (G&A) expenses, a lower effective tax rate and a 5.7% decrease in diluted weighted average shares outstanding due to ongoing share repurchases.

·                  IHOP produced its 18th consecutive quarter of same-store sales growth with an increase of 2.5% for the second quarter 2007.  This growth was driven by higher guest check averages, partially offset by declines in guest traffic during the quarter.

·                  IHOP franchisees developed and opened 15 new restaurants during the second quarter 2007.  System-wide restaurants grew 4.4% year-over-year for a total of 1,319 IHOPs.

·                  Cash Flows from Operating Activities for the first six months of 2007 totaled $23.6 million.  Additionally, $8.3 million of cash was provided by the collection of the Company’s long-term receivables for the first six months of 2007.

·                  Share repurchases aggregated $39.4 million for the second quarter 2007, or approximately 677,000 shares of IHOP stock.

Julia A. Stewart, IHOP’s Chairman and Chief Executive Officer, said, “We are very pleased with our performance for the second quarter 2007 as it demonstrates our proven financial formula for success: driving top line sales through new franchise restaurant openings and same-store sales growth while moderating G&A expenses and continuing share repurchases.  This fundamental financial formula is designed to optimize our low risk, high cash flow franchise business model and allows for the deployment of our capital in ways that enhance shareholder value.”

Second Quarter 2007 Performance

IHOP reported an increase of 37.1% in net income to $14.1 million, and a 46.4% increase in diluted net income per share to $0.82 for the second quarter 2007 compared with the same quarter in fiscal 2006.  The increases in net income and diluted net income per share resulted primarily from a 7.1% decrease in G&A expenses and a 10.2 percentage point decrease in the Company’s effective tax rate primarily due to a one-time reduction of certain tax contingency reserves.  The Company’s effective tax rate decreased to 29.9% in the second quarter 2007 as compared to 40.1% in the same quarter last year.  Additionally, a 5.7% reduction in diluted weighted average shares outstanding, due to share repurchases by the Company made over the past 12 months, contributed to IHOP’s per share earnings performance for the second quarter 2007.

For the six months ended June 30, 2007, IHOP reported an increase of 11.1% in net income to $25.4 million, and an increase of 16.1% in diluted net income per share to $1.44.  The increases in net income and diluted net income per share resulted primarily from a 7.0% increase in Franchise Operations segment profit and a 5.8 percentage point decrease in the Company’s effective tax

 

450 N. Brand Boulevard • 7th Floor • Glendale, CA 91203-2306 • Phone: (818) 637-3632 • Fax: (818) 637-3120

 

---

rate primarily due to a one-time reduction of certain tax contingency reserves.  The Company’s effective tax rate decreased to 33.2% in the first six months of 2007 as compared to 39.0% in the same period last year.  Additionally, a 4.4% reduction in diluted weighted average shares outstanding due to ongoing share repurchases by the Company contributed to IHOP’s per share earnings performance for the first half of 2007.  IHOP’s net income and net income per diluted share performance for the first six months of 2007 were affected by the costs related to the write-off of deferred financing costs and a pre-payment penalty on the Company’s prior debt associated with its $200 million securitized refinancing completed in March 2007.  Excluding these costs, net income would have increased 17.6% to $26.9 million, while diluted net income per share would have increased 22.6% to $1.52.

G&A expenses decreased 7.1% to $14.1 million for the second quarter 2007 compared with the same quarter in fiscal 2006, and remained flat at $30.2 million for the first six months of 2007 compared with the same period in fiscal 2006.  The quarterly decrease was primarily due to decreased travel and conference expense as well as lower costs related to the Company’s performance share plans for its executive management team.  However, the expenses associated with this benefit program are tied in part to the Company’s stock price performance and may change with future movements in IHOP Corp. stock price.

Cash Flows from Operating Activities decreased 22.4% for the first six months of fiscal 2007 to $23.6 million compared with $30.4 million for the same period in fiscal 2006.  This decrease was primarily related to the timing of tax payments in the second quarter 2007.  Principal receipts from notes and equipment contracts receivable, which are an additional source of cash generation for the Company, amounted to $8.3 million for the six months of fiscal 2007.  Capital expenditures decreased to $1.4 million for the first six months of fiscal 2007 compared with $3.9 million for the same period in fiscal 2006.  The decrease in capital expenditures primarily reflects a reduction in restaurant development costs consistent with the Company’s plan not to open any IHOPs in its dedicated Company market in Cincinnati, Ohio, in 2007.

For the three months ended June 30, 2007, system-wide same-store sales increased 2.5%, which reflected solid growth given a continuing difficult consumer environment and increased competition at the breakfast daypart. During the second quarter 2007, IHOP experienced an increase in guest check average primarily due to the cumulative effect of menu price increases taken in 2006, while guest traffic declined during the quarter.

2007 Performance Guidance

On July 16, 2007, IHOP Corp. announced it had reached a definitive agreement to acquire Applebee’s International, Inc. for $25.50 per share in cash, representing a total transaction value of approximately $2.1 billion.  The transaction is expected to close some time in the fourth quarter 2007.  While the Company remains comfortable with its existing performance guidance for 2007 as it relates to its IHOP business, IHOP is suspending its fiscal 2007 earnings guidance as current guidance does not take into account the effect of the Applebee’s acquisition on full year results.

The acquisition not withstanding, IHOP reiterated its key performance assumptions for fiscal 2007.  The Company expects same-store sales growth between 2% and 4%, the addition of 61 to 66 new franchise restaurants to the IHOP system, moderate G&A spending in the range of $65 million to $67 million, and the effect of share repurchases executed in the first half of fiscal 2007 to contribute to its per share earnings performance for fiscal 2007.

2

---

Cash from Operations is expected to range between $60 million and $65 million in 2007, and principal receipts from note and equipment contracts receivable are expected to be within the range of $16 million to $18 million.  Capital expenditures are expected to range between $6 million and $8 million in 2007.  This primarily reflects investment in the Company’s Information Technology infrastructure and construction related to the opening of additional restaurants in IHOP’s Company market in Cincinnati, Ohio, in fiscal 2008.

Investor Conference Call Today

IHOP will host an investor conference call to discuss its second quarter 2007 financial results on Wednesday, July 25, 2007 at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time).  To participate on the call, please dial (888) 680-0869, reference pass code 79531352 and then press “*0” to be connected with an operator to be registered to join the live call.  A live webcast of the call will be available on IHOP’s Web site at www.ihop.com, and may be accessed by visiting Calls & Presentations under the site’s Investor Information 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 telephonic replay of the call may be accessed through August 1, 2007 by dialing 888-286-8010 and referencing pass code 85461146.  An online archive of the webcast will also be available on the Investor Information section of IHOP’s Web site.

About IHOP Corp.

The IHOP family restaurant chain has been serving a wide variety of breakfast, lunch and dinner selections for more than 45 years.  Offering 14 types of pancakes as well as omelettes, breakfast specialties, burgers, sandwiches, salads, chicken and steaks, IHOP’s diverse menu appeals to people of all ages. IHOP restaurants are franchised and operated by Glendale, California-based IHOP Corp.  As of June 30, 2007, the end of IHOP’s second quarter, there were 1,319 IHOP restaurants in 49 states, Canada, Mexico and the U.S. Virgin Islands.  IHOP Corp. common stock is listed and 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, and include statements regarding the timing and certainty of closing the transaction, strategic and financial benefits of the transaction, expectations regarding accretion, integration and cost savings, and other financial guidance. 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: the implementation of IHOP’s strategic growth plan; the availability of suitable locations and terms for the sites designated for development; the ability of franchise developers to fulfill their commitments to build new restaurants in the numbers and time frames covered by their development agreements; legislation and government regulation including the ability to obtain satisfactory regulatory approvals; uncertainty as to whether the transaction will be completed; the failure to obtain the approval of Applebee’s stockholders; the inability to obtain, or meet conditions imposed for, applicable regulatory requirements relating to the transaction; the failure of either party to meet the closing conditions set forth in the definitive agreement; IHOP’s failure to obtain financing for the transaction on satisfactory terms or at all; risks associated with successfully

3

---

integrating IHOP and Applebee’s; risks associated with executing IHOP’s strategic plan for Applebee’s; risks associated with IHOP’s incurrence of significant indebtedness to finance the acquisition; the failure to realize the synergies and other perceived advantages resulting from the transaction; costs and potential litigation associated with the transaction; the ability to retain key personnel both before and after the transaction; conditions beyond IHOP’s control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting IHOP’s customers or food supplies or acts of war or terrorism; availability and cost of materials and labor; cost and availability of capital; competition; continuing acceptance of the IHOP, International House of Pancakes and Applebee’s brands and concepts by guests and franchisees; IHOP’s and Applebee’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 and Applebee’s news releases, public statements and/or filings with the Securities and Exchange Commission, especially the “Risk Factors” sections of IHOP’s and Applebee’s Annual and Quarterly Reports on Forms 10-K and 10-Q. Forward-looking information is provided by IHOP Corp. 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.

References to Non-GAAP Financial Measures

This news release includes references to the non-GAAP financial measure “net income excluding early debt extinguishment costs,” which is stated in the text of the news release as “one-time costs related to the write-off of deferred financing costs and a pre-payment penalty on the Company’s pre-existing debt.”  The Company defines “net income excluding early debt extinguishment costs” for a given period as net income for such period, excluding the effect of any early debt extinguishment costs incurred in such period.  Management believes net income excluding early debt extinguishment costs and basic and diluted net income per share excluding early debt extinguishment costs is useful because it provides a more accurate period to period comparison.  Net income excluding early debt extinguishment costs for any given period may be affected by a variety of factors, including but not limited to, changes in assets and liabilities and the timing of purchases and payments.  Net income excluding early debt extinguishment costs is a supplemental non-GAAP financial measure and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.

[Financial Tables to Follow]

4

IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		2007			2006			2007			2006
Revenues
Franchise revenues		$	46,934		$	42,490		$	93,984		$	87,745
Rental income		33,058			32,254			66,068			65,604
Company restaurant sales		4,625			2,785			8,609			6,157
Financing revenues		4,870			7,545			10,950			14,085
Total revenues		89,487			85,074			179,611			173,591
Costs and Expenses
Franchise expenses		21,369			19,226			42,590			39,724
Rental expenses		24,594			24,507			49,175			49,155
Company restaurant expenses		5,317			3,131			9,875			6,887
Financing expenses		2,569			4,829			4,951			7,869
General and administrative expenses		14,103			15,188			30,224			30,278
Other expense, net		1,376			979			2,485			2,151
Early debt extinguishment costs		—			—			2,223			—
Total costs and expenses		69,328			67,860			141,523			136,064
Income before income taxes		20,159			17,214			38,088			37,527
Provision for income taxes		6,029			6,908			12,645			14,627
Net income		$	14,130		$	10,306		$	25,443		$	22,900
Net Income Per Share
Basic		$	0.82		$	0.57		$	1.45		$	1.25
Diluted		$	0.82		$	0.56		$	1.44		$	1.24
Weighted Average Shares Outstanding
Basic		17,156			18,159			17,500			18,290
Diluted		17,328			18,369			17,688			18,509
Dividends Declared Per Share		$	0.25		$	0.25		$	0.50		$	0.50
Dividends Paid Per Share		$	0.25		$	0.25		$	0.50		$	0.50

 

5

IHOP CORP. AND SUBSIDIARIES
RESTAURANT DATA
   (Unaudited)

		Three Months Ended June 30,				Six Months Ended June 30,
		2007		2006		2007		2006
Restaurant Data
Effective restaurants (a)
Franchise		1,137		1,087		1,133		1,083
Company		13		6		12		7
Area license		159		155		159		155
Total		1,309		1,248		1,304		1,245
System-wide (b)
Sales percentage change (c)		7.9	%	7.8	%	6.6	%	8.6	%
Same-store sales percentage change (d)		2.5	%	3.1	%	1.6	%	4.1	%
Franchise (b)
Sales percentage change (c)		8.0	%	8.0	%	6.6	%	9.0	%
Same-store sales percentage change (d)		2.6	%	3.1	%	1.6	%	4.2	%
Company
Sales percentage change (c)		66.1	%	(26.8	)%	39.8	%	(21.0	)%
Area License (b)
Sales percentage change (c)		4.0	%	8.5	%	4.5	%	7.2	%

___________

(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. Information is presented for all effective restaurants in the IHOP system, which includes IHOP restaurants owned by the Company as well as those owned by franchisees and area licensees.

(b)                                “System-wide sales” are retail sales at IHOP restaurants operated by franchisees, area licensees and the Company, as reported to the Company.  Franchise restaurant sales were $508.0 million and $1,012.2 million for the second quarter and first six months ended June 30, 2007, respectively, and sales at area license restaurants were $52.8 million and $108.3 million for the second quarter and first six months ended June 30, 2007, respectively.  Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company.

(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)                                 “Same-store sales percentage change” reflects the percentage change in sales, in any given fiscal period compared to the prior fiscal period, for 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 store closures, the restaurants open throughout both fiscal periods being compared will be different from period to period.  Same-store sales percentage change does not include data on restaurants located in Florida.

6

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

		Three Months Ended June 30,				Six Months Ended June 30,
		2007		2006		2007		2006
Restaurant Development Activity
Beginning of period		1,306		1,252		1,302		1,242
New openings
Company-developed		—		1		—		1
Franchisee-developed		15		16		21		23
International franchisee-developed		—		—		2		—
Area license		—		—		—		3
Total new openings		15		17		23		27
Closings
Company and franchise		(1	)	(4	)	(5	)	(4	)
Area license		(1	)	(1	)	(1	)	(1	)
End of period		1,319		1,264		1,319		1,264
Summary-end of period
Franchise		1,147		1,102		1,147		1,102
Company		13		7		13		7
Area license		159		155		159		155
Total		1,319		1,264		1,319		1,264
Restaurant Franchising Activity
Company-developed		—		—		—		—
Franchisee-developed		15		16		21		23
International franchisee-developed		—		—		2		—
Rehabilitated and refranchised		—		5		2		8
Total restaurants franchised		15		21		25		31
Reacquired by the Company		—		(5	)	(6	)	(7	)
Closed		(1	)	(4	)	(4	)	(4	)
Net addition		14		12		15		20

 

7

IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

		June 30, 2007			December 31, 2006
		(Unaudited)
Assets
Current assets
Cash and cash equivalents		$	32,561		$	19,516
Receivables, net		42,530			45,571
Reacquired franchises and equipment held for sale, net		428			—
Inventories		302			396
Prepaid expenses		10,096			7,493
Deferred income taxes		5,643			5,417
Total current assets		91,560			78,393
Long-term receivables		293,893			302,088
Property and equipment, net		300,588			309,737
Excess of costs over net assets acquired		10,767			10,767
Other assets		82,750			67,885
Total assets		$	779,558		$	768,870
Liabilities and Stockholders’ Equity
Current liabilities
Current maturities of long-term debt		$	18,000		$	19,738
Accounts payable		7,703			14,689
Accrued employee compensation and benefits		9,444			13,359
Other accrued expenses		5,985			11,317
Capital lease obligations		5,377			5,002
Total current liabilities		46,509			64,105
Long-term debt, less current maturities		175,000			94,468
Deferred income taxes		73,490			76,017
Capital lease obligations		167,228			170,412
Other liabilities		76,943			74,655
Commitments and contingencies
Stockholders’ equity
Preferred stock, $1 par value, 10,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $.01 par value, 40,000,000 shares authorized; June 30, 2007: 23,113,424 shares issued and 16,859,229 shares outstanding; December 31, 2006: 22,818,007 shares issued and 17,873,548 shares outstanding		229			227
Additional paid-in capital		142,704			131,748
Retained earnings		375,109			358,975
Accumulated other comprehensive loss		—			(133		)
Treasury stock, at cost (6,254,195 shares and 4,944,459 shares at June 30, 2007 and December 31, 2006, respectively)		(277,654		)	(201,604		)
Total stockholders’ equity		240,388			289,213
Total liabilities and stockholders’ equity		$	779,558		$	768,870

 

8

IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Six Months Ended June 30,
		2007			2006
Cash flows from operating activities
Net income		$	25,443		$	22,900
Adjustments to reconcile net income to cash flows provided by operating activities
Depreciation and amortization		10,830			9,988
Debt extinguishment and other costs		2,223			—
Deferred income taxes		(2,753		)	(6,893		)
Stock-based compensation expense		2,245			1,859
Excess tax benefit from stock-based compensation		(2,343		)	(395		)
Gain on sale of land		(98		)	—
Changes in operating assets and liabilities
Receivables		2,595			2,758
Inventories		94			12
Prepaid expenses		(2,603		)	114
Accounts payable		(6,986		)	2,030
Accrued employee compensation and benefits		(3,915		)	(1,642		)
Other accrued expenses		(2,243		)	1,316
Other		1,090			(1,655		)
Cash flows provided by operating activities		23,579			30,392
Cash flows from investing activities
Additions to property and equipment		(1,449		)	(3,857		)
Additions and reductions to long-term receivables		(893		)	168
Principal receipts from notes and equipment contracts receivable		8,283			9,197
Additions to reacquired franchises held for sale		(429		)	(581		)
Property insurance proceeds, net		(173		)	2,234
Proceeds from sale of land		795			—
Cash flows provided by investing activities		6,134			7,161
Cash flows from financing activities
Proceeds from issuance of long-term debt, including revolving line of credit		208,000			—
Repayment of long-term debt		(129,206		)	(1,035		)
Payment of debt issuance costs		(14,307		)	—
Prepayment penalties on early debt extinguishment		(1,219		)	—
Principal payments on capital lease obligations		(2,809		)	(2,155		)
Dividends paid		(8,820		)	(9,182		)
Purchase of treasury stock		(77,020		)	(29,580		)
Proceeds from stock options exercised		6,370			2,194
Excess tax benefit from stock-based compensation		2,343			395
Cash flows used in financing activities		(16,668		)	(39,363		)
Net change in cash and cash equivalents		13,045			(1,810		)
Cash and cash equivalents at beginning of period		19,516			23,111
Cash and cash equivalents at end of period		$	32,561		$	21,301

 

9

IHOP CORP. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts)
(Unaudited)

Reconciliation of net income to net income excluding impact of early debt extinguishment costs:

		Three Months Ended June 30,						Six Months Ended June 30,
		2007			2006			2007			2006
Net income, as reported		$	14,130		$	10,306		$	25,443		$	22,900
Early debt extinguishment costs		—			—			2,223			—
Income tax benefit		—			—			(738		)	—
Net income excluding early debt extinguishment costs		$	14,130		$	10,306		$	26,928		$	22,900
Basic net income per share:
Net income, as reported per share		$	0.82		$	0.57		$	1.45		$	1.25
Early debt extinguishment costs per share		—			—			0.13			—
Income tax benefit per share		—			—			(0.04		)	—
Net income excluding early debt extinguishment costs per share		$	0.82		$	0.57		$	1.54		$	1.25
Diluted net income per share:
Net income, as reported per share		$	0.82		$	0.56		$	1.44		$	1.24
Early debt extinguishment costs per share		—			—			0.12			—
Income tax benefit per share		—			—			(0.04		)	—
Net income excluding early debt extinguishment costs per share		$	0.82		$	0.56		$	1.52		$	1.24

 

10

Exhibit 99.2

RESTAURANT   SUPPORT   CENTER

IHOP Corp.
Second Quarter 2007 Call Script

Stacy Roughan — Welcome and Safe Harbor

Good morning and thank you for participating on IHOP’s second quarter 2007 conference call.  Today, with us from management are Julia Stewart, Chairman and CEO, and Tom Conforti, CFO.

Before I turn the call over to Julia and Tom, let me remind you of our Safe Harbor regarding forward-looking information.  Today, management may discuss information that is forward-looking, and involves 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.  We caution you to evaluate such forward-looking information in the context of these factors, which are detailed in today’s news release, as well as in our most recent Form 10-Q filing with the Securities and Exchange Commission. In addition, IHOP disclaims any intent or obligation to update these forward-looking statements.

Now, I’d like to turn the call over to Julia Stewart.

450 N. Brand Boulevard • 7th Floor • Glendale, CA 91203-2306 • Phone: (818) 637-3632 • Fax: (818) 637-3120

 

---

Julia Stewart — Second Quarter 2007 Performance Overview

Thanks, Stacy.

We are very pleased with our performance for the second quarter 2007 as it demonstrates our proven financial formula for success, which is designed to optimize our low risk, high cash flow franchise business model and allows for the deployment of our capital in ways that enhance shareholder value.  Let’s walk through the highlights of our performance.

EPS for the quarter was $0.82 [cents], which was a 46.4% [percent] increase from the same quarter last year.  The increase was due to a 7.1% decrease in G&A expenses and a 10.2 percentage point decrease in the our effective tax rate primarily due to a one-time reduction of tax contingency reserves.  Additionally, continued share repurchases drove EPS higher with a 5.7% [percent] reduction in diluted weighted average shares outstanding year-over-year.

For the six months of 2007, EPS increased 16.1% [percent] to $1.44 [dollars/cents].  The increase resulted primarily from a 7.0% [percent] increase in Franchise Operations segment profit and a 5.8 percentage point decrease in our effective tax rate primarily due to a reduction of one-time tax contingency reserves. Additionally, a 4.4% reduction in diluted weighted average shares outstanding due to ongoing share repurchases contributed to our per share earnings performance for the first half of 2007.  However, EPS performance during the first half of 2007 was impacted by the write-off of deferred financing costs and a pre-payment penalty on the Company’s

2

---

prior debt.  You may recall that we refinanced our prior debt with a $200 million [dollar] securitized refinancing — consisting of $175 million [dollars] of fixed notes and a $25 million [dollar] variable funding note — which we completed in March 2007.  Excluding these costs, EPS would have increased 22.6% [percent] to $1.52 [dollar/cents].

During the quarter, we purchased $39.4 million [dollars] worth of IHOP stock, or approximately 677,000 shares at an average price of $58.27 [dollars/cents].  We returned $4.4 million [dollars] to shareholders through quarterly dividend payments in May of this year.  For the first half of 2007, we returned a total of $85.8 million [dollars] to shareholders by repurchasing more than 1.3 million shares and paying nearly $9 million [dollars] in dividend payments.  This brings IHOP’s total cash return to shareholders over the past 18 quarters to more than $363 million [dollars].

As you are aware, last week, IHOP Corp. announced it had reached a definitive agreement to acquire Applebee’s International, Inc. for $25.50 [dollars/cents] per share in cash, representing a total transaction value of approximately $2.1 billion [dollars].  Since the announcement, I am pleased to report that we have already met with the Applebee’s management team and taken steps to begin the process of integrating our two companies.  We have established a transition team with management leadership from IHOP and Applebee’s, and we are working together in a collaborative and constructive fashion.

3

---

I am particularly pleased that the team was able to come to a quick decision about Applebee’s new Support Center.  Applebee’s associates will be moving to a new building in Lenexa, Kansas, as previously planned, with the move starting in December 2007.  This means we expect both brands will operate support centers — IHOP in Glendale and Applebee’s in Lenexa.

I also feel good about the work we have accomplished regarding severance and retention bonuses. Our two companies have similar transition assistance philosophies, and we are aligned on severance issues.  We also recognize the importance of continuity throughout the closing process and beyond.  So, the team is working on the final details, and we should have specifics to share with Applebee’s associates in the very near future. Additionally, the transition team will begin working on an integration plan for the combined entity in short order.

I will let Tom provide you with an update of our progress with regard to financing the transaction, including rapidly moving ahead with Applebee’s and IHOP’s securitizations, arranging for the sale and leaseback of Applebee’s real estate, and identifying franchising opportunities for Applebee’s company-operated restaurants.

While this is certainly an exciting time for our Company, I want to provide you with my personal reassurance that — for IHOP — it is business as usual.  We have a strong day-to-day leadership team in place for the IHOP brand.  Dennis Farrow, our Chief Operating Officer, and Carolyn O’Keefe, our

4

---

Chief Marketing Officer, continue to provide stewardship for the IHOP brand with my oversight.  We intend to keep our eye on the ball, and will not allow management’s focus on IHOP to waiver.

That being said, our core franchising business turned in solid results for the second quarter 2007 as we continued to focus on our key strategies — Energizing the Brand, Improving Operations and Maximizing Development.

We were pleased with our same-store sales performance of 2.5% [percent] during the quarter, which led us to our 18th consecutive quarter of growth.  We believe this is quite an accomplishment considering the difficult consumer environment and increased competition at the breakfast daypart.

We are also working to raise the bar throughout the IHOP system from an operations perspective.  The adoption of IHOP’s new restaurant training program — which is aimed at making IHOP’s guest service as good as our pancakes — is in full swing as we move IHOP’s franchise system forward by breaking through to our guests with improved levels of service.  Additionally, we have successfully implemented improvements and raised the food safety standards of our “A/B” operator system during the first half of 2007.

Franchisees developed and opened 15 new IHOP restaurants domestically during the quarter.  We also added 18 new IHOP franchise restaurants to our development pipeline, and have pending commitments for another 25  IHOP restaurants to be built by franchisees.   This activity brings our

5

---

current development pipeline to as many as 455 IHOP restaurants signed, optioned or pending as of the end of the second quarter.

We remain dedicated to expanding the reach of the IHOP brand and improving the operational performance of our franchise system.  And, we remain optimistic about the continued strong performance of our core business in the second half of 2007.

With that, I would now like to turn the call over to Tom Conforti, our Chief Financial Officer, for a more detailed discussion of our financial performance, as well as our progress on restructuring and financing plans related to our pending acquisition of Applebee’s International, Inc.

Tom Conforti — Second Quarter 2007 Performance Detail

Thanks, Julia, and good morning everyone.  Julia covered our EPS performance just a moment ago, so let me quickly walk you through key drivers of that EPS performance for the second quarter 2007.

First, let’s turn to a quick review of our segment performance for the second quarter 2007 versus the same quarter last year, starting with Franchise Operations, our core business.  Revenue growth was driven by higher retail sales as a result of growth in the number of effective units, as well as growth in same-store sales.  Franchise Operations expenses grew in line with revenue and produced a 9.9% [percent] increase in Franchise

6

---

Operations profit for the quarter and 7.0% [percent] increase for the first six months of the year.

Turning to the Rental Operations segment, Rental Operations profit increased 9.3% [percent] for the quarter and 2.7% for the first six months of the year.  Profit was up in the segment primarily due to a decrease in the write-offs of deferred rent income associated with refranchising activities taken in 2006.

Our Company Operations loss increased from the second quarter last year to a $692,000 [dollars] loss and a $1.3 million [dollar] loss in the first half of 2007.  The loss is largely due to lower levels of sales at recently opened locations in our Cincinnati market.  At the end of the second quarter, we operated 13 IHOP restaurants, 10 of which were located in our dedicated R&D market of Cincinnati.  Three other restaurants were taken back from franchisees and are expected to be refranchised in the near future.

Turning to Financing Operations, profit in this segment decreased 15.3% [percent] for the second quarter and 3.5% [percent] for the first half of 2007 as expected, as we continue to exit “Old Model” sources of revenue.

Moving to G&A, we managed overall expenses to a lower level during the second quarter, reducing spending by 7.1% [percent].  This primarily resulted from decreased travel and conference expense related to our decision to hold our National Operations Meeting in September as compared to prior years when it was held in January.  Additionally, lower

7

---

costs related to the Company’s long-term incentive plan for our executive management team reduced G&A expense for the quarter.  However, the expense associated with this benefit program is tied in part to the Company’s stock price performance and may change with future movements in our stock price.

Looking at our tax rate, our effective tax rate during the second quarter 2007 was 29.9% [percent], which was lower due to a one-time reduction of tax contingency reserves.  This impacted our first half 2007 performance comparisons as well.  These reductions were primarily the result of a lapse of an applicable statute of limitations on one of our reserves, resulting in the recognition of $2.0 million [dollars] of tax benefits.

Turning to Cash Flow, cash provided by operating activities decreased 22.4% [percent] to $23.6 million [dollars] for the first six months of the year.  This decrease was primarily the result of lower taxes payables due to the build up of payables in 2006 associated with the settlement of an IRS tax audit, as well as the timing of tax payments in the first quarter 2007 versus the same quarter last year, and the reduction in our tax reserve.  Our Cash Flow was augmented by $8.3 million [dollars] during the first six months of the year from the systematic run-off of our franchise and equipment notes receivables.  This brought total cash generated — Cash from Operations plus the receivables run-off — to $31.9 million [dollars].

CAPEX totaled a modest $1.4 million [dollars] for the first six months of the year, which was less than half our capital spending level in the same period

8

---

last year, consistent with our plan not to develop any company-operated IHOP restaurants in our dedicated R&D market of Cincinnati this year.

Now, I would like to update you on solid progress that our transition team is beginning to make in just the first week and a half of moving forward with the acquisition of Applebee’s.

The team is moving ahead rapidly to establish the appropriate legal and reporting structures to support Applebee’s $1.9 billion [dollar] securitization and to incur an additional borrowing of $175 million [dollars] in debt under our existing IHOP securitization structure.  Both financing efforts are off to good starts with significant contributions from Applebee’s Finance, Accounting and Legal leadership as well as IHOP’s team.  Our goal is to fund the acquisition into the securitization structure upon closing the deal some time during the fourth quarter.   Although a tight timeframe,we remain optimistic that we will be able to do just that.  In the event of any unforeseen delays, a bridge facility is also in place so that we can keep to our goal of closing the acquisition transaction during the fourth quarter 2007.

From a sale leaseback perspective, our goal is to execute sale leasebacks as near to the acquisition close as possible.  Therefore, the transition team has already begun working through this process as one of our highest priorities.  The same can be said for our planned franchising efforts as the transition team is working diligently to finalize a strategy that would see us begin to franchise Applebee’s company-operated restaurants early next

9

---

year.  Both efforts are being organized as we speak.  We will seek to update you as often as is feasible. We recognize that there are certain cultural and process differences between our two companies to address, but so far, so good.

With that, I’ll turn the call back to Julia.

Julia Stewart — Wrap Up to Q&A

Thanks, Tom.  Before I open the call to your questions, I want to touch on our performance guidance for 2007.  While we remain comfortable with our existing performance guidance for 2007 as it relates to IHOP’s business, we have decided to suspend our fiscal 2007 EPS guidance as current guidance does not take into account the effect of the Applebee’s acquisition on full year results.  However, the acquisition not withstanding, we did reiterate key performance assumptions related to IHOP’s business, which many of you are already familiar with and which are detailed in today’s news release.  Additionally, we do not expect to repurchase IHOP shares in the second half of 2007.

In closing, I am optimistic about the balance of 2007 and we remain dedicated to IHOP’s three fold-strategy — Energizing the Brand, Improving Operations and Maximizing Franchise Development.

We are also eager to see the acquisition of Applebee’s come successfully to fruition in a reasonable timeframe.  We have a plan in place to fundamentally restructure the Applebee’s business and re-energize the brand as we look to drive ever-increasing cash generation capabilities from

10

---

the combined companies over the long-term.  As we complete our restructuring of Applebee’s and the pay down of debt, it would be our intention to return to our aggressive program of returning cash to shareholders, probably some time in 2009.  In this way, we expect to continue to employ the same shareholder-friendly actions that have proven to be a critical part of IHOP’s success over the last several years.

With that, I would now like to open the call to answer any questions you might have.

Operator?

Julia Stewart — Closing Comments

Thank you for joining today’s call.  Should you have additional questions, Tom and I are available after the call.  Otherwise, we look forward to speaking to you on our next conference call to discuss third quarter 2007 results, which is scheduled for Tuesday, October 23th.  Thank you.

 

11