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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________ 
FORM 10-Q
 (Mark One)
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2021
 OR
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                  to                
 
Commission File Number 001-15283
https://cdn.kscope.io/6453b978b03e168b4a60c06990b509a5-din-20210331_g1.jpg Dine Brands Global, Inc. https://cdn.kscope.io/6453b978b03e168b4a60c06990b509a5-din-20210331_g2.jpg
(Exact name of registrant as specified in its charter)
Delaware95-3038279
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
450 North Brand Boulevard, 91203-1903
Glendale,CA
(Address of principal executive offices) (Zip Code)
 
(818)240-6055
(Registrant’s telephone number, including area code)
 ______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
 Title of each class Trading symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueDINNew York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 
 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 Accelerated filer
Non-accelerated filer
 Smaller reporting company 
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 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes 
  No  
 
As of April 28, 2021, the Registrant had 17,157,339 shares of Common Stock outstanding.


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Dine Brands Global, Inc. and Subsidiaries
Index
  Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Cautionary Statement Regarding Forward-Looking Statements
 
Statements contained in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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. You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “goal” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the United States Securities and Exchange Commission. The forward-looking statements contained in this report are made as of the date hereof and Dine Brands Global, Inc. does not intend to, nor does it assume any obligation to, update or supplement any forward-looking statements after the date of this report to reflect actual results or future events or circumstances.

Factors that could cause actual results to differ materially from the projections, forecasts, estimates and expectations discussed in this Quarterly Report on Form 10-Q include, among other things: uncertainty regarding the duration and severity of the ongoing COVID-19 pandemic and its ultimate impact on our business; general economic conditions; our level of indebtedness; compliance with the terms of our securitized debt; our ability to refinance our current indebtedness or obtain additional financing; our dependence on information technology; potential cyber incidents; the implementation of restaurant development plans; our dependence on our franchisees; the concentration of our Applebee’s franchised restaurants in a limited number of franchisees; the financial health of our franchisees, including any insolvency or bankruptcy; credit risks from our IHOP franchisees operating under our previous IHOP business model in which we built and equipped IHOP restaurants and then franchised them to franchisees; insufficient insurance coverage to cover potential risks associated with the ownership and operation of restaurants; our franchisees’ and other licensees’ compliance with our quality standards and trademark usage; general risks associated with the restaurant industry; potential harm to our brands’ reputation; risks of food-borne illness or food tampering; possible future impairment charges; trading volatility and fluctuations in the price of our stock; our ability to achieve the financial guidance we provide to investors; successful implementation of our business strategy; the availability of suitable locations for new restaurants; shortages or interruptions in the supply or delivery of products from third parties or availability of utilities; the management and forecasting of appropriate inventory levels; development and implementation of innovative
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marketing and use of social media; changing health or dietary preference of consumers; risks associated with doing business in international markets; the results of litigation and other legal proceedings; third-party claims with respect to intellectual property assets; delivery initiatives and use of third-party delivery vendors; our allocation of human capital and our ability to attract and retain management and other key employees; compliance with federal, state and local governmental regulations; risks associated with our self-insurance; natural disasters or other serious incidents; our success with development initiatives outside of our core business; the adequacy of our internal controls over financial reporting and future changes in accounting standards; and other matters in the “Risk Factors” section of this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and in our other filings with the Securities and Exchange Commission, many of which are beyond our control.

Fiscal Quarter End

The Company’s fiscal quarters end on the Sunday closest to the last day of each calendar quarter. For convenience, the fiscal quarters of each year are referred to as ending on March 31, June 30, September 30 and December 31. The first fiscal quarter of 2021 began on January 4, 2021 and ended on April 4, 2021. The first fiscal quarter of 2020 began on December 30, 2019 and ended on March 29, 2020.





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PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.
Dine Brands Global, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share amounts)

Assets
March 31, 2021December 31, 2020
 (Unaudited)
Current assets:  
Cash and cash equivalents
$179,567 $383,369 
Receivables, net of allowance of $11,854 (2021) and $15,057 (2020)
107,387 121,897 
Restricted cash
60,063 39,884 
Prepaid gift card costs
22,581 29,080 
Prepaid income taxes
6,940 6,178 
Other current assets
9,171 6,098 
Total current assets
385,709 586,506 
Other intangible assets, net547,098 549,671 
Operating lease right-of-use assets338,572 346,086 
Goodwill251,628 251,628 
Property and equipment, net182,661 187,977 
Long-term receivables, net of allowance of $6,455 (2021) and $7,999 (2020)
51,605 54,512 
Deferred rent receivable54,713 56,449 
Non-current restricted cash32,800 32,800 
Other non-current assets, net11,503 9,316 
Total assets
$1,856,289 $2,074,945 
Liabilities and Stockholders’ Deficit
  
Current liabilities:  
Current maturities of long-term debt
$13,000 $13,000 
Accounts payable
33,522 37,424 
Gift card liability
121,814 144,159 
Current maturities of operating lease obligations
70,270 69,672 
Current maturities of finance lease and financing obligations
11,052 11,293 
Accrued employee compensation and benefits
14,554 21,237 
Deferred franchise revenue, short-term
8,990 7,682 
Accrued advertising44,477 21,641 
Other accrued expenses
17,417 22,460 
Total current liabilities
335,096 348,568 
Long-term debt1,271,438 1,491,996 
Operating lease obligations, less current maturities334,361 345,163 
Finance lease obligations, less current maturities66,234 69,012 
Financing obligations, less current maturities32,598 32,797 
Deferred income taxes, net70,006 78,293 
Deferred franchise revenue, long-term49,364 52,237 
Other non-current liabilities14,594 11,530 
Total liabilities
2,173,691 2,429,596 
Commitments and contingencies
Stockholders’ deficit:  
Preferred stock, $1 par value, 10,000,000 shares authorized; no shares issued or outstanding
  
Common stock, $0.01 par value; shares: 40,000,000 authorized; March 31, 2021 - 25,033,181 issued, 17,142,367 outstanding; December 31, 2020 - 24,882,122 issued, 16,452,174 outstanding
250 249 
 Additional paid-in-capital
247,498 257,625 
 Accumulated deficit(29,950)(55,553)
 Accumulated other comprehensive loss
(56)(55)
Treasury stock, at cost; shares: March 31, 2021 - 7,890,814; December 31, 2020 - 8,429,948
(535,144)(556,917)
Total stockholders’ deficit
(317,402)(354,651)
Total liabilities and stockholders’ deficit
$1,856,289 $2,074,945 
 See the accompanying Notes to Consolidated Financial Statements.
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Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
March 31, 2021
 20212020
Revenues:
Franchise revenues:
Royalties, franchise fees and other
$80,091 $83,314 
Advertising revenues
60,885 61,723 
Total franchise revenues140,976 145,037 
Company restaurant sales35,949 31,300 
Rental revenues26,142 29,009 
Financing revenues1,132 1,538 
Total revenues204,199 206,884 
Cost of revenues:
Franchise expenses:
Advertising expenses
60,885 61,723 
Bad debt (credit) expense(1,993)518 
Other franchise expenses
6,051 7,209 
Total franchise expenses64,943 69,450 
Company restaurant expenses32,884 30,332 
Rental expenses:
Interest expense from finance leases
962 1,210 
Other rental expenses
19,996 21,323 
Total rental expenses20,958 22,533 
Financing expenses128 142 
Total cost of revenues118,913 122,457 
Gross profit
85,286 84,427 
General and administrative expenses
39,911 37,608 
Interest expense, net
16,496 15,172 
Closure and impairment charges (credit)2,010 (12)
Amortization of intangible assets
2,688 2,826 
Loss (gain) on disposition of assets167 (233)
Income before income taxes24,014 29,066 
Income tax benefit (provision)1,589 (6,738)
Net income25,603 22,328 
Other comprehensive income net of tax:
Foreign currency translation adjustment(1) 
Total comprehensive income$25,602 $22,328 
Net income available to common stockholders:
Net income$25,603 $22,328 
Less: Net income allocated to unvested participating restricted stock(548)(748)
Net income available to common stockholders$25,055 $21,580 
Net income available to common stockholders per share:
Basic$1.52 $1.33 
Diluted$1.51 $1.31 
Weighted average shares outstanding:
Basic16,460 16,263 
Diluted16,630 16,470 
See the accompanying Notes to Consolidated Financial Statements.

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Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(In thousands)
(Unaudited)


Three Months ended March 31, 2020
Common StockAccumulated
Other
Comprehensive
Loss
Treasury Stock
Shares
Outstanding
AmountAdditional
Paid-in
Capital
Retained EarningsSharesCostTotal
Balance at December 31, 201916,522 $249 $246,192 $61,653 $(58)8,404 $(549,810)$(241,774)
Adoption of credit loss accounting guidance— — — (497)— — — (497)
Net income— — — 22,328 — — — 22,328 
Purchase of Company common stock(460)— — — — 460 (26,527)(26,527)
Reissuance of treasury stock367 — 3,967 — — (368)16,557 20,524 
Net issuance of shares for stock plans18 — — — — — — — 
Repurchase of restricted shares for taxes(26)— (2,000)— — — — (2,000)
Stock-based compensation— — 4,038 — — — — 4,038 
Dividends on common stock— — 246 (12,715)— — — (12,469)
Balance at March 31, 202016,421 $249 $252,443 $70,769 $(58)8,496 $(559,780)$(236,377)

Three Months ended March 31, 2021
 Common Stock  Accumulated
Other
Comprehensive
Loss
Treasury Stock 
 Shares
Outstanding
AmountAdditional
Paid-in
Capital
Retained Earnings (Accumulated Deficit)SharesCostTotal
Balance at December 31, 202016,452 $249 $257,625 $(55,553)$(55)8,430 $(556,917)$(354,651)
Net income— — — 25,603 — — — 25,603 
Other comprehensive loss— — — — (1)— — (1)
Reissuance of treasury stock539 1 (2,290)— — (539)21,773 19,484 
Net issuance of shares for stock plans166 — — — — — — — 
Repurchase of restricted shares for taxes(15)— (1,220)— — — — (1,220)
Stock-based compensation— — 3,094 — — — — 3,094 
Tax withheld related to settlement of restricted stock units— — (9,711)— — — — (9,711)
Balance at March 31, 202117,142 $250 $247,498 $(29,950)$(56)7,891 $(535,144)$(317,402)


See the accompanying Notes to Consolidated Financial Statements.



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Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
 March 31,
 20212020
Cash flows from operating activities: 
Net income$25,603 $22,328 
Adjustments to reconcile net income to cash flows provided by operating activities: 
Non-cash closure and impairment charges (credit)1,959 (12)
Depreciation and amortization9,995 10,641 
Non-cash stock-based compensation expense3,094 4,038 
Non-cash interest expense712 655 
Deferred income taxes(8,267)(10,491)
Deferred revenue(1,565)(1,417)
Loss (gain) on disposition of assets167 (227)
Other(1,580)(1,293)
Changes in operating assets and liabilities: 
Accounts receivable, net(4,323)12,077 
Current income tax receivables and payables(552)6,443 
Gift card receivables and payables(3,246)11,693 
Other current assets(3,072)(2,347)
Accounts payable809 (12,748)
Accrued employee compensation and benefits(6,968)(12,190)
Accrued advertising22,836 (4,719)
Other current liabilities(5,037)7,214 
Cash flows provided by operating activities30,565 29,645 
Cash flows from investing activities:  
Principal receipts from notes, equipment contracts and other long-term receivables4,651 5,544 
Net additions to property and equipment(2,357)(5,084)
Proceeds from sale of property and equipment946 6 
Additions to long-term receivables (1,511)
Other(110)(195)
Cash flows provided by (used in) investing activities3,130 (1,240)
Cash flows from financing activities: 
Repayment of long-term debt(3,250) 
Borrowing from revolving credit facility 220,000 
Repayment of revolving credit facility(220,000) 
Dividends paid on common stock (11,451)
Repurchase of common stock (29,853)
Principal payments on finance lease obligations(2,621)(2,981)
Proceeds from stock options exercised19,484 20,524 
Tax payments for restricted stock upon vesting(1,220)(2,000)
Tax payments for share settlement of restricted stock units(9,711) 
Cash flows (used in) provided by financing activities(217,318)194,239 
Net change in cash, cash equivalents and restricted cash(183,623)222,644 
Cash, cash equivalents and restricted cash at beginning of period456,053 172,475 
Cash, cash equivalents and restricted cash at end of period$272,430 $395,119 
Supplemental disclosures:  
Interest paid in cash$17,240 $16,446 
Income taxes paid in cash$7,441 $10,818 
Non-cash conversion of accounts receivable to notes receivable$1,269 $ 
See the accompanying Notes to Consolidated Financial Statements.
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Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

1. General
 
The accompanying unaudited consolidated financial statements of Dine Brands Global, Inc. (the “Company” or “Dine Brands Global”) have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2021.
 
The consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all of information and footnotes required by U.S. GAAP for complete financial statements.
 
These consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
 
2. Basis of Presentation
 
The Company’s fiscal quarters end on the Sunday closest to the last day of each calendar quarter. For convenience, the fiscal quarters of each year are referred to as ending on March 31, June 30, September 30 and December 31. The first fiscal quarter of 2021 began on January 4, 2021 and ended on April 4, 2021. The first fiscal quarter of 2020 began on December 30, 2019 and ended on March 29, 2020.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated.
 
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make assumptions and estimates that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, if any, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates may include the calculation and assessment of the following: impairment of goodwill, other intangible assets and tangible assets; income taxes; allowance for credit losses on accounts and notes receivables; lease accounting estimates; contingencies; and stock-based compensation. On an ongoing basis, the Company evaluates its estimates based on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.
 
Risks and Uncertainties

The Company was subject to risks and uncertainties as a result of the continuing outbreak of a novel strain of coronavirus, designated “COVID-19.” The extent of the continued impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as measures taken in response to and the effect of the pandemic has varied and continues to vary by state and municipalities within states. Assessments of the success of measures taken and the timing of any further restrictions, or lifting of such restrictions, is rapidly evolving. The Company first began to experience impacts from COVID-19 in March 2020, as federal, state, local and international governments began to react to the public health crisis by encouraging “social distancing” and requiring, in varying degrees, restaurant dine-in limitations and other restrictions that largely limited the restaurants of the Company's franchisees and its company-operated restaurants to take-out and delivery sales. Subsequently, government-imposed dine-in restrictions have been relaxed in many of the locations in which the Company operates as incidents of infection decline within the respective governmental jurisdictions, although dining room capacity continues to be limited to 50% or less at over two-thirds of the Company's restaurants as of March 31, 2021.

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Table of Contents
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

2. Basis of Presentation (Continued)

The Company took several actions to mitigate the effects of the COVID-19 pandemic on its operations and its franchisees, as follows: (i) drew down $220 million from its revolving credit facility in March 2020 and repaid the borrowing in March 2021;(ii) suspended repurchases of common stock; (iii) the Company's Board of Directors has not declared dividends after the first quarter of 2020; (iv) voluntarily increased the interest reserve for securitized debt from the required $16.4 million (approximately one quarter of estimated interest) to $32.8 million; (v) deferred franchisee payment of royalty, advertising and other fees, and lease obligations for up to two months on a case-by-case basis; (vi) deferred franchisee remodel and development obligations for up to 15 months; and (vii) negotiated deferrals and abatements for properties on which the Company was lessee.

The severity of the continued impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, how long the pandemic will last, whether/when recurrences of the virus and variants of the virus may arise, the availability and acceptance of vaccines, what restrictions on in-restaurant dining may be imposed or re-imposed, the timing and extent of customer re-engagement with the Company's brands and, in general, what the short- and long-term impact on consumer discretionary spending the COVID-19 pandemic might have on the Company and the restaurant industry as a whole, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could adversely be impacted by the length of time dine-in restrictions remain in place and the success of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by itself and its franchisees. As such, the extent to which the COVID-19 pandemic may continue to materially impact the Company's financial condition, liquidity, or results of operations is highly uncertain.



3. Accounting Standards Adopted and Newly Issued Accounting Standards Not Yet Adopted

Accounting Standards Adopted in the Current Fiscal Year
 
In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance intended to simplify the accounting for income taxes, change the accounting for certain income tax transactions, and make other minor changes. The Company adopted the new guidance at the beginning of the first fiscal quarter of 2021. Adoption did not have any material effect on the consolidated financial statements.

Additional new accounting guidance became effective for the Company as of the beginning of fiscal 2021 that the Company reviewed and concluded was either not applicable to its operations or had no material effect on its consolidated financial statements in the current or future fiscal years.

Newly Issued Accounting Standards Not Yet Adopted

In March 2020, with an update in January 2021, the FASB issued guidance which provides optional expedients and exceptions for applying current U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The guidance can be adopted immediately and is applicable to contracts entered into on or before December 31, 2022. We are currently evaluating our contracts that reference LIBOR and the potential effects of adopting this new guidance.

The Company reviewed all other newly issued accounting pronouncements and concluded that they either are not applicable to the Company's operations or that no material effect is expected on the Company's financial statements when adoption is required in the future.



4. Revenue Disclosures

Franchise revenue and revenue from company-operated restaurants are recognized in accordance with current guidance for revenue recognition as codified in Accounting Standards Topic 606 (“ASC 606”). Under ASC 606, revenue is recognized upon transfer of control of promised services or goods to customers in an amount that reflects the consideration the Company expects to receive for those services or goods.


8

Table of Contents
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

4. Revenue Disclosures (Continued)

Franchising Activities

The Company owns, franchises and operates the Applebee's Neighborhood Grill & Bar® (“Applebee's”) concept in the casual dining category of the restaurant industry and the Company owns and franchises the International House of Pancakes® (“IHOP”) concept in the family dining category of the restaurant industry. The franchise arrangement for both brands is documented in the form of a franchise agreement and, in most cases, a development agreement. The franchise arrangement between the Company as the franchisor and the franchisee as the customer requires the Company to perform various activities to support the brands that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality, and substantially all the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the franchise license is to provide the franchisee with access to the respective brand’s symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

The transaction price in a standard franchise arrangement for both brands primarily consists of (a) initial franchise/development fees; (b) continuing franchise fees (royalties); and (c) advertising fees. Since the Company considers the licensing of the franchising right to be a single performance obligation, no allocation of the transaction price is required. All domestic IHOP franchise agreements require franchisees to purchase proprietary pancake and waffle dry mix from the Company.


The Company recognizes the primary components of the transaction price as follows:

Franchise and development fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with the restaurant opening date. As these fees are typically received in cash at or near the beginning of the franchise term, the cash received is initially recorded as a contract liability until recognized as revenue over time;
The Company is entitled to royalties and advertising fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and advertising revenue are recognized when the franchisee's reported sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or, once billed, accounts receivable, and are included in “receivables, net” in the Consolidated Balance Sheets.
Revenue from the sale of proprietary pancake and waffle dry mix is recognized in the period in which distributors ship the franchisee's order; recognition of revenue results in an accounts receivable included in “receivables, net” in the Consolidated Balance Sheets.

In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectibility of the amount; however, the timing of recognition does not require significant judgments as it is based on either the term of the franchise agreement, the month of reported sales by the franchisee or the date of product shipment, none of which require estimation. The Company does not incur a significant amount of contract acquisition costs in conducting franchising activities. The Company's franchising arrangements do not contain a significant financing component.

Company Restaurant Revenue

Sales by company-operated restaurants are recognized when food and beverage items are sold. Company restaurant sales are reported net of sales taxes collected from guests that are remitted to the appropriate taxing authorities.


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Table of Contents
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

4. Revenue Disclosures (Continued)

The following table disaggregates franchise revenue by major type for the three months ended March 31, 2021 and 2020:
 Three Months Ended
 March 31,
 20212020
(In thousands)
Franchise Revenue:
Royalties$65,767 $67,600 
Advertising fees60,885 61,723 
Pancake and waffle dry mix sales and other10,890 12,848 
Franchise and development fees3,434 2,866 
Total franchise revenue
$140,976 $145,037 

Accounts and other receivables from franchisees as of March 31, 2021 and December 31, 2020 were $79.5 million (net of allowance of $7.7 million) and $76.3 million (net of allowance of $11.4 million), respectively, and were included in receivables, net in the Consolidated Balance Sheets.

Changes in the Company's contract liability for deferred franchise and development fees during the three months ended March 31, 2021 are as follows:
 Deferred Franchise Revenue (short- and long-term)
(In thousands)
Balance at December 31, 2020$59,919 
Recognized as revenue during the three months ended March 31, 2021(3,354)
Fees deferred during the three months ended March 31, 20211,789 
Balance at March 31, 2021$58,354 
The balance of deferred revenue as of March 31, 2021 is expected to be recognized as follows:
(In thousands)
Remainder of 2021$7,931 
20227,130 
20236,629 
20246,044 
20255,268 
Thereafter25,352 
Total$58,354 

5. Current Expected Credit Losses

The CECL reserve methodology requires companies to measure expected credit losses on financial instruments based on the total estimated amount to be collected over the lifetime of the instrument. Under the CECL model, reserves may be established against financial asset balances even if the risk of loss is remote or has not yet manifested itself. The Company records specific reserves against account balances of franchisees deemed at-risk when a potential loss is likely or imminent as a result of prolonged payment delinquency (greater than 90 days past due) and where notable credit deterioration has become evident. For financial assets that are not currently deemed at-risk, an allowance is recorded based on expected loss rates derived pursuant to the Company's CECL methodology that assesses four components - historical losses, current conditions, reasonable and supportable forecasts, and a reversion to history, if applicable.


10

Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)


5. Current Expected Credit Losses (Continued)

The Company considers its portfolio segments to be the following:

Accounts Receivable (Franchise-Related)

Most of the Company’s short-term receivables due from franchisees are derived from royalty, advertising and other franchise-related fees.

Gift Card Receivables
    
Gift card receivables consist primarily of amounts due from third-party vendors. Receivables related to gift card sales are subject to seasonality and usually peak around year end as a result of the December holiday season.

Notes Receivable

Notes receivable balances primarily relate to the conversion of certain Applebee's franchisee accounts receivable to notes receivable, cash loans to franchisees for working capital purposes, a note receivable in connection with the sale of IHOP company restaurants and IHOP franchise fee and other notes. The notes are typically collateralized by the franchise. A significant portion of these notes have specific reserves recorded against them amounting to $9.4 million as of March 31, 2021.

Equipment Leases Receivable

Equipment leases receivable also relate to IHOP franchise development activity prior to 2003. Equipment lease contracts are collateralized by the equipment in the restaurant. The estimated fair value of the equipment collateralizing these lease contracts are not deemed to be significant given the very seasoned and mature nature of this portfolio. The weighted average remaining life of the Company’s equipment leases is 5.2 years as of March 31, 2021.

Direct Financing Leases Receivable
Direct financing lease receivables relate to IHOP franchise development activity prior to 2003 when IHOP typically leased or purchased the restaurant site, built and equipped the restaurant, then franchised the restaurant to a franchisee. IHOP provided the financing for leasing or subleasing the site. Direct financing leases at March 31, 2021, comprised 85 leases with a weighted average remaining life of 4.1 years, and relate to locations that IHOP is leasing from third parties and subleasing to franchisees.

Distributor Receivables

Receivables due from distributors are related to the sale of IHOP’s proprietary pancake and waffle dry mix to franchisees through the Company’s network of suppliers and distributors and are included as part of Other receivables.

March 31, 2021December 31, 2020
(In millions)
Accounts receivable$84.8 $85.7 
Gift card receivables5.4 22.5 
Notes receivable20.4 18.6 
Financing receivables:
     Equipment leases receivable40.8 43.9 
     Direct financing leases receivable20.1 22.7 
     Franchise fee notes receivable0.1 0.1 
Other5.7 6.0 
177.3 199.5 
Less: allowance for credit losses(18.3)(23.1)
159.0 176.4 
Less: current portion(107.4)(121.9)
Long-term receivables$51.6 $54.5 


11

Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)


5. Current Expected Credit Losses (Continued)

Changes in the allowance for credit losses during the three months ended March 31, 2021 were as follows:
Accounts ReceivableNotes receivable, short-termNotes receivable, long-termLease ReceivablesEquipment Notes
Other (1)
Total
 (In millions)
Balance, December 31, 2020$11.2 $3.6 $5.3 $0.4 $2.3 $0.3 $23.1 
Bad debt (credit) expense for the three months ended March 31, 2021(2.0)0.5 (0.0)(0.3)(0.1)(0.1)(2.0)
Advertising provision adjustment(1.4)(0.0)    (1.4)
Write-offs(0.2)  0.0 (1.2) (1.4)
Recoveries   0.0   0.0 
Balance, March 31, 2021$7.6 $4.1 $5.3 $0.1 $1.0 $0.2 $18.3 
(1) Primarily distributor receivables, gift card receivables and credit card receivables

The Company's primary credit quality indicator for all portfolio segments is delinquency. The delinquency status of receivables (other than accounts receivable, gift card receivables and distributor receivables) at March 31, 2021 was as follows:
Notes receivable, short-termNotes receivable, long-termLease ReceivablesEquipment Notes
Other (1)
Total
 (In millions)
Current$5.2 $12.7 $20.1 $40.8 $2.2 $81.0 
30-59 days0.1     0.1 
60-89 days0.1     0.1 
90-119 days0.1     0.1 
120+ days2.2     2.2 
Total$7.7 $12.7 $20.1 $40.8 $2.2 $83.5 
(1) Primarily credit card receivables

The year of origination of the Company's financing receivables is as follows:
Notes receivable, short and long-termLease ReceivablesEquipment NotesTotal
 (In millions)
2021$2.2 $ $ $2.2 
20201.2 1.5  2.7 
20192.6 0.9  3.5 
20188.0   8.0 
20176.3   6.3 
20160.1 17.7 40.8 58.6 
Total$20.4 $20.1 $40.8 $81.3 

The Company does not place its financing receivables in non-accrual status.

6. Lease Disclosures

The Company engages in leasing activity as both a lessee and a lessor. The Company currently leases from third parties the real property on which approximately 550 IHOP franchisee-operated restaurants and one Applebee's franchisee-operated restaurant are located; the Company (as lessor) subleases the property to the franchisees that operate those restaurants. The Company also leases property it owns to the franchisees that operate approximately 55 IHOP restaurants and one Applebee's restaurant. The Company leases from third parties the real property on which 69 Applebee's company-operated restaurants are located. The Company also leases office space for its principal corporate office in Glendale, California and restaurant support centers in Kansas City, Missouri and Raleigh, North Carolina. The Company does not have a significant amount of non-real estate leases.
12


Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

6. Lease Disclosures (Continued)

The Company's existing leases/subleases related to IHOP restaurants generally provide for an initial term of 20 to 25 years, with most having one or more five-year renewal options. Leases related to Applebee's restaurants generally have an initial term of 10 to 20 years, with renewal terms of five to 20 years. Option periods were not included in determining liabilities and right-of-use assets related to operating leases. Approximately 240 of the Company's leases met the sales levels that required variable rent payments to the Company (as lessor), based on a percentage of restaurant sales during the three months ended March 31, 2021. Approximately 30 of the leases met the sales levels that required variable rent payments by the Company (as lessee), based on a percentage of restaurant sales during the three months ended March 31, 2021.

The Company's lease cost for the three months ended March 31, 2021 and 2020 was as follows:
Three months ended March 31,
20212020
(In millions)
Finance lease cost:
Amortization of right-of-use assets
$1.2 $1.3 
Interest on lease liabilities
1.4 1.7 
Operating lease cost25.1 26.5 
Variable lease cost0.3 0.4 
Short-term lease cost0.0 0.0 
Sublease income(24.2)(26.6)
Lease cost$3.8 $3.3 


Future minimum lease payments under noncancelable leases as lessee as of March 31, 2021 were as follows:
Finance
Leases
Operating
Leases
 (In millions)
2021 (remaining nine months)$11.7 $69.0 
202214.4 86.2 
202311.6 71.0 
20249.7 65.8 
20258.5 57.0 
Thereafter50.8 146.6 
Total minimum lease payments106.7 495.6 
Less: interest/imputed interest(30.2)(90.9)
Total obligations76.5 404.7 
Less: current portion(10.3)(70.3)
Long-term lease obligations$66.2 $334.4 

The weighted average remaining lease term as of March 31, 2021 was 7.2 years for finance leases and 9.2 years for operating leases. The weighted average discount rate as of March 31, 2021 was 10.2% for finance leases and 5.6% for operating leases.

13


Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)

6. Lease Disclosures (Continued)

During the three months ended March 31, 2021 and 2020, the Company made the following cash payments for leases:
Three months ended March 31,
20212020
(In millions)
Principal payments on finance lease obligations$2.6 $3.0 
Interest payments on finance lease obligations$1.5 $1.7 
Payments on operating leases$23.0 $23.4 
Variable lease payments$0.3 $0.1 

The Company's income from operating leases for the three months ended March 31, 2021 and 2020 was as follows:
Three months ended March 31,
20212020
(In millions)
Minimum lease payments$23.8 $25.4 
Variable lease income1.6 2.4 
Total operating lease income$25.4 $27.8 

Minimum payments to be received as lessor under noncancelable operating leases as of March 31, 2021 were as follows:
 (In millions)
2021 (remaining nine months)$75.6 
202298.8 
202395.0 
202486.9 
202575.0 
Thereafter164.3 
Total minimum rents receivable$595.6 

The Company's income from direct financing leases for the three months ended March 31, 2021 and 2020 was as follows:
Three months ended March 31,
20212020
 (In millions)
Interest income$0.6 $1.0 
Variable lease income0.1 0.2 
Total operating lease income$0.7 $1.2 

Minimum payments to be received as lessor under noncancelable direct financing leases as of March 31, 2021 were as follows:
 (In millions)
2021 (remaining nine months)$7.5 
20227.5 
20233.6 
20241.5 
20250.7 
Thereafter3.1 
Total minimum rents receivable23.9 
Less: unearned income(3.8)
Total net investment in direct financing leases20.1 
Less: current portion(7.9)
Long-term investment in direct financing leases $12.2 

14

Table of Contents
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)



7. Long-Term Debt
  
At March 31, 2021 and December 31, 2020, long-term debt consisted of the following:
March 31, 2021December 31, 2020
 (In millions)
Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I
$696.5 $698.3 
Series 2019-1 4.723% Fixed Rate Senior Secured Notes, Class A-2-II
597.0 598.5 
Series 2019-1 Variable Funding Senior Notes Class A-1, variable interest rate of 2.42% at December 31, 2020
 220.0 
Debt issuance costs(9.1)(11.8)
Long-term debt, net of debt issuance costs1,284.4 1,505.0 
Current portion of long-term debt(13.0)(13.0)
Long-term debt